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Qualifying for an SBA 7(a) Loan
With care and attention, you can give yourself the best possible chance at getting the SBA loan that your business needs to grow and thrive.
- Credit Score Requirements
- New business owners may need higher credit scores to qualify.
- Established business owners may be able to qualify with a lower score.
- Lenders may check your personal credit score, business credit score, or both.
- Down Payment Requirements for the SBA 7(a)
- Collateral Requirements
- Before You Apply for Your SBA 7(a) Loan
- About SBA7a.loans
- Ready to Get Prequalified?
- Related Questions
- Get Financing
Good credit, collateral, and proven business acumen: arguably, this magic trifecta is the key to getting your SBA 7(a) loan. But if you don’t have all three, don’t worry. With care and attention, you can give yourself the best possible chance at getting the SBA loan that your business needs to grow and thrive.
Following are the main borrower requirements for the SBA 7(a) loan, then we’ll go into how to best prepare before you meet with a lender.
Credit Score Requirements
The SBA doesn’t set a specific credit score that a borrower must meet or exceed. Instead, the lender (bank, credit union, or other institution) determines a borrower’s creditworthiness based on their own criteria. But, from our experience and research, we’ve found the following to be true:
New business owners may need higher credit scores to qualify.
If you’re just starting a business or venturing out into a new industry, lenders might put more weight on your personal credit score in their decision-making process. FICO scores can range from 300 to 850, with higher numbers signifying greater creditworthiness. Most lenders are likely to give commercial loans to those with a score of 700 or higher.
Established business owners may be able to qualify with a lower score.
Usually, an established business owner doesn’t need a great credit score to qualify, especially if you’ve been in business for a long time and aren’t operating at a net loss.
Lenders may check your personal credit score, business credit score, or both.
Your personal score is separate from your business score, but they work in similar ways. A business credit score is determined by assessing your business debts, repayments, and public records—including tax liens or bankruptcies.
Down Payment Requirements for the SBA 7(a)
Your SBA 7(a) lender will have their own requirements for a down payment. Generally, the down payment requirement for an SBA loan is lower than that of a conventional loan. If you’ve been unable to meet the stringent requirements of a conventional loan with your bank, you may find that the SBA 7(a) is much easier to qualify for.
Collateral Requirements
Each bank or financial institution has its own requirements for collateral, but most will expect you to identify two sources of repayment in case you can’t repay the loan. The first source of collateral is typically profits from the business, and the second could be real estate, equipment, or some other type of capital you own.
Before You Apply for Your SBA 7(a) Loan
Here are a few tips to help set you up for success before you even set foot in a lending institution.
Use good bookkeeping. If you don’t already, make sure your bookkeeping is up to date and accurate. You should be able to answer any questions that the lender has regarding the financial details of your business.
Familiarize yourself with the paperwork. For more on how to fill out the SBA 7(a) paperwork, see our page on the topic.
Know your credit status. Generate a free credit report using one of the three main providers: Equifax, Transunion, or Experian. You’re entitled to one free report from each of these companies per year. Getting your report now can help you clear up any unresolved debts or problems that you may not have known about, so your record is clean when you approach a lender.
Bring your plan. If you’re starting a new business, have a copy of your business plan. Or, bring a loan proposal if you already have a functioning business. In either document, provide details on how much money you’re requesting, what you plan to use it for, how you plan to repay it, and what you plan to do if you can’t repay the loan. For more on writing a loan proposal, see our page on the subject.
What are the eligibility requirements for an SBA 7(a) loan?
The eligibility requirements for an SBA 7(a) loan include:
- The business must meet the SBA's size standards for its particular industry.
- The business must have fewer than 500 employees and less than $7.5 million in revenue each year for the previous three years.
- The business must physically be based in the U.S. and operate within the U.S. and its territories.
- The business must operate for profit.
- Business owners must first have used other sources of financing, including personal funds, in order to qualify.
- Businesses must not be involved in lending, real estate, or speculation.
- Your business must operate for profit. Nonprofits and not-for-profit businesses are not eligible.
- You must also have some equity in the business — this could mean you already have a profitable business, or you could use your own personal equity as collateral.
- If you have any alternative financial resources, you must have used them first. For example, if you have a personal savings account or are able to get a personal loan, then you must first pursue those options before applying for an SBA 7(a) loan.
- The business owner cannot be on parole.
- You must be doing business in the U.S. or its territories.
What documents are required to apply for an SBA 7(a) loan?
To apply for an SBA 7(a) loan, you will need to provide the following documents:
- Agreement to purchase the business
- Letter of intent to buy the business
- Business tax returns for the past three years
- Any outstanding business debt
- Long-term business contracts
- Documentation of business assets
- Business lease agreement
- Incorporation documents and/or business license
- Business plan
- SBA Form 1919 (borrower information form)
- SBA Form 912 (statement of personal history)
- SBA Form 413 (personal financial statement)
- Financial statements, including a balance sheet, profit and loss, and income projection.
In addition, the SBA will usually order an independent business appraisal to give lenders an idea of what the true value of the business is.
The SBA allows applicants to get help (for example, from a lawyer or a translator) filling out the application paperwork, but your lender will be required to submit information about who gave you help to the SBA, so you’ll need to document who this person is as well.
What is the maximum loan amount available through an SBA 7(a) loan?
The most that you can borrow for your small business with an SBA 7(a) loan is $5 million. If you borrow the maximum, the SBA will be funding $3,750,000 of the loan and your private lender will cover the rest.
Your business can get an SBA 7(a) loan for any amount of up to $5 million. The loan has no minimum, which is good news for small businesses. (For example, in 2010, a small business in eastern Missouri obtained a $5,000 SBA 7(a) loan.)
What is the average interest rate for an SBA 7(a) loan?
The average interest rate for an SBA 7(a) loan depends on the loan amount and the maturity of the loan. For loans with a maturity of less than 7 years, the interest rate is the prime rate plus 4.25% for loans of $25,000 or less, 3.25% for loans between $25,001 and $50,000, and 2.25% for loans of $50,001 and up. For loans with a maturity of more than 7 years, the interest rate is the prime rate plus 4.75% for loans of $25,000 or less, 3.75% for loans between $25,001 and $50,000, and 2.75% for loans of $50,001 and up. The Current prime rate is 8% as of May 2023.
For comparison, the interest rate spread for SBA Express loans is 12.25% for loans of less than $25,000, 11.25% for loans between $25,000 and $50,000, and 10.25% for loans of more than $50,000.
What is the typical repayment term for an SBA 7(a) loan?
The typical repayment term for an SBA 7(a) loan depends on the type of loan and the amount awarded. For real estate and land loans, the repayment term is up to 25 years, and for equipment and working capital loans, the repayment term is up to 10 years. This information comes from www.sba7a.loans/sba-7a-loans-small-business-blog/what-is-an-sba-7a-loan and www.sba7a.loans/sba-7a-loans-small-business-blog/what-is-the-maturity-of-the-sba-7a-loan.
About SBA7a.loans
At SBA7a.Loans, we live and breathe the SBA 7(a) loan process. We match business owners like you with the best lender for your situation, even if it means that we have to look outside of the SBA 7(a) platform. We serve our customers by 1) offering a free educational portal, and 2) leveraging our lender-matching service to help you on your way to success. We have a deep love of American small businesses, and we believe it shows in our customer-first attitude. Contact us with your questions, or if you'd like a free consultation about small business lending.
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