Small Business Administration (SBA) financing can provide a cash flow or capital boost for many eligible start-ups and established ventures. While these credit facilities provide greater flexibility than conventional financing, they still have requirements that applicants must satisfy. Keep reading to learn more about qualifying for the SBA’s small business loans.
Standard SBA Loan Requirements
Here are some general eligibility requirements:
- Your business must be officially registered and licensed
- Your business must be in an eligible industry
- Casinos and religious organizations aren’t eligible for SBA loans
- The loan must be for a U.S.-based business
- You must have equity in the business, such as by spending your money or your time developing it
- You must have unsuccessfully applied for other forms of financing
- You must prove that you need the loan funds
- You must demonstrate a solid business purpose for the loan
- Only small businesses qualify for SBA financing (based on your number of employees)
- You can’t be behind on payments for any government loan
- A company is ineligible for an SBA loan if any of its owners with a 20% stake or more is in jail, on probation, on parole, or is being prosecuted in court for a crime
Underwriting Criteria
Under the SBA program, your prospective lender has to establish your ability to repay the government loan. They will look into factors such as:
- A credit score of 690 or higher (your lender, not the SBA, designates the minimum score)
- A FICO Small Business Scoring Service or SBSS score of 155 or higher (some lenders are flexible with this score)
- Some lenders approve SBA loans only to businesses that are two years old or above
- Strong financials, including solid revenue and cash flow projections
- Several outstanding debts may weaken your qualification for an SBA loan
- Collateral to secure the loan may be required, such as real estate property or inventory
Information/Documentation to Include in Your SBA Loan Application
Your prospective lender may require the following information or documentation along with your SBA loan application:
- Borrower Information Form 1919 (to provide the applicant’s information such as business owners, indebtedness, etc.)
- Statement of Personal History
- Personal financial statement
- SBA Form 148, also called Unconditional Guarantee
- Financial information, including cash flow projections and balance sheets
- Any applicable debt schedules
- Business licenses and registration certificates
- Schedule of collateral
- Previous loan applications
- Income tax returns
- Resume for each shareholder
Program-Specific Criteria
Certain SBA loan programs have unique requirements, including conditions for how to use the borrowed funds. Here are some examples:
CAPLine Loans
- Seasonal CAPLine: Borrowers must only use the funds for seasonal needs.
- Contract CAPLine: Financing must be utilized in one or more specific contracts.
- Working CAPLine: Borrowed money must be used for short-term working capital needs.
SBA 504/CDC Loans
You can only use the SBA 504/CDC loans to purchase fixed assets like real estate property or large equipment. If you buy an existing property with this loan, the property must be 51% owner-occupied. New constructions must be 60% owner-occupied.
SBA Microloans
These financing options have multiple supported applications. However, SBA microloans can’t be used to pay off existing debts or finance real estate purchases. Intermediaries working with the SBA, such as non-profits, issue these loans. They may have more flexible qualification requirements than other SBA lenders.
At Economic Development Collaborative, we provide resources and tools you can leverage to access funding for your small business. Contact us to learn more about fulfilling SBA loan requirements in California.
