What Are the SBA 7(a) Loan Borrower Eligibility Requirements?
Eligibility depends on several factors decided by both the lender and the SBA. You must operate a for-profit business, have reasonable owner equity, have a proven need for the loan, and intend to operate the business within the United States or its territories.Better Financing Starts with More Options$1.2M offered by a Bank at 6.0%$2M offered by an Agency at 5.6%$1M offered by a Credit Union at 5.1%Click Here to Get Quotes
The SBA sets out several guidelines for business owners looking to qualify for a government-backed loan. Lenders are also allowed by the SBA to set their own eligibility requirements.
A business owner looking to obtain an SBA 7(a) loan must operate a for-profit business -- non-profit organizations are not eligible to receive SBA funds. The business owner must also have reasonable equity to invest and must have sought out all other potential means for funds. If the owner has the ability to receive a personal loan, for example, they must first exhaust that option.
The SBA requires borrowers to operate businesses within the United States or one of its territories. Also, the business owner must not be on parole. Certain industries are ineligible for SBA loans, such as speculation-based industries, gambling, or religious institutions.
SBA Preferred Lenders
Although SBA eligibility requirements remain the same no matter the lender you chose, you can expedite the lending process and improve your chances for approval by working with an SBA preferred lender. These lending institutions have proven track records of getting small business owners the funds they need in a timely manner.
Preferred lenders also have the authority to make decisions on behalf of the SBA. The SBA doesn’t have the time or the oversight to see cases on an individual basis, but lenders do, which is why working with a preferred lender is so beneficial to borrowers.
Or, to learn more about the SBA 7(a) loan program and get a free quote, simply click the button below!
What are the qualifications for an SBA 7(a) loan?
In order to qualify for an SBA 7(a) loan, you'll need:
- A credit score of at least 690
- A record free of any bankruptcies in the past three years
- At least a 10% down payment
- For franchisees, a paid franchise fee before the loan funds are released
- A clean criminal history, or the ability to explain any misdemeanors on your record
- No current Federal debt
In addition, the business that will benefit from the loan will generally need to be:
- A for-profit entity
- A small business
- Based in the United States
- A business with invested equity
- A business that has exhausted its other financing options
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 for an SBA 7(a) loan?
The maximum loan amount for 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.
Source: SBA 7(a) Loan Calculator and SBA 7(a) Loan Amounts, Maturity, and Rates
What is the interest rate for an SBA 7(a) loan?
The interest rate for an SBA 7(a) loan depends on the amount of the loan and the maturity of the loan. For loans with a maturity of less than 7 years, the interest rate is the Wall Street Journal 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 Wall Street Journal 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 Wall Street Journal Prime Rate is 7.75% as of February 2023.
What is the repayment period for an SBA 7(a) loan?
The repayment period for an SBA 7(a) loan depends on the type of loan. For commercial real estate loans, the repayment period is up to 25 years. For equipment loans, the repayment period is up to 10 years. For working capital loans, the repayment period is also up to 10 years.
Learn more: What is an SBA 7(a) Loan?