About SBA Loans

Created in 1953, the U.S. Small Business Administration (SBA) continues to help small business owners and entrepreneurs pursue the American dream. The SBA is the only cabinet-level federal agency fully dedicated to small business and provides counseling, capital, and contracting expertise as the nation’s only go-to resource and voice for small businesses.

When you apply for an SBA loan, you aren’t applying directly to the government agency so here’s where it gets a little tricky. The SBA doesn’t actually “make” the loan, they guarantee a portion of it as long as the actual lender abides by certain underwriting guidelines, such as credit worthiness of the loan recipient. On top of that, the SBA designates a very small number of lenders as “preferred” lenders who are authorized to make loans without any approvals from the SBA. Working with a preferred SBA lender can really speed up and simplify the loan process, which is why we ONLY work with SBA Preferred Lenders at Ultreia Capital!

In order to be considered eligible for an SBA 7(a) loan, your business must operate in the United States, or within a U.S. territory. The business owner must not be on parole, and the business itself can’t be a non-profit organization.

Basic Requirements for an SBA Loan

In general, a company seeking an SBA loan must:

  • Be a small business as defined by the SBA. To figure out whether your business meets the definition of a small business, visit the SBA website.
  • Be legally organized as a sole proprietorship, corporation, partnership or LLC.
  • Operate as a for-profit entity.
  • Do business in or plan to do business in the U.S. or a U.S. territory.
  • Have a reasonable amount of owner equity.
  • Use other financial alternatives, such as an owner’s personal assets, before pursuing an SBA loan.

Of course, these are broad requirements. Other more specific criteria also apply, depending on which loan you apply for, and lenders themselves may have their own requirements.

What Kinds of Businesses Qualify for SBA Loans?

Business types eligible for SBA 7(a) loans, the most common type of SBA loan, include:

  • Restaurants and bars
  • Retail stores
  • Franchises, such as those for restaurants and hotels
  • Professional services, such as accounting or law firms
  • Farms and agribusinesses
  • Properly licensed medical facilities, such as hospitals, clinics, emergency outpatient centers, nursing homes, and medical and dental labs

Some ineligible business types include:

  • Businesses whose primary source of revenue is gambling or speculative
  • Real estate firms that buy and sell properties as investments
  • Lenders, such as banks and finance companies
  • Businesses involved in illicit activity, such as a motel that caters to illegal prostitution
  • Businesses that rely on pyramid sales schemes
  • Religious, charitable or nonprofit organizations

Business Experience Needed for SBA Loans

By and large, SBA lenders shy away from industry newbies; they’re looking to lend to entrepreneurs who have a track record. So, if you’re hoping to launch a clothing boutique but have zero experience in the sales or fashion industry, you could be out of luck.

Revenue Needed for SBA Loans

Generally speaking, your business will need to show profitability. A lender will likely consider annual revenue based on industry standards. However, that lender will judge each business on its own merits.

Also, a lender generally likes to see that a business has been around for at least two years and has sufficient cash flow. However, a lender will weigh each business’ circumstances. For example, some lenders do offer SBA loans to start-ups.

Credit Score Needed for SBA Loans

Two types of credit scores are considered for SBA loans: your personal credit score and your business’ credit score.

When it comes to your personal credit score, a lender typically will want to see a minimum of 640 to 680 to qualify for an SBA loan. The SBA doesn’t mandate a minimum personal credit score, but lenders are required to maintain prudent lending standards. If your business has a FICO credit score, the lender will look for one that’s at least 140 to 160, on a scale of zero to 300.

The owner’s credit is more relevant than business credit because, in most cases, the owner is required to give a personal guarantee for the business loan. However, it’s always good to have other financial instruments like a business line of credit or a business credit card to demonstrate (positive) patterns of business behavior in paying back the loan. Ultreia Capital can help you secure both a business line of credit and a business credit card, if needed!

Aside from a decent credit score, you’ll need a credit history clear of recent bankruptcies, foreclosures or tax liens.

If you’re behind on paying a federally backed student loan or a Federal Housing Administration-backed mortgage – or, worse yet, if you’ve defaulted on either of those loans – you’ll be disqualified from receiving an SBA loan.

Can Your Business Qualify for an SBA Loan?

Although the SBA has some requirements that are inflexible, including the types of businesses that can qualify, lenders can set their own standards for other requirements. Business experience, revenue and credit rating requirements needed to qualify can vary by lender.

If your business qualifies under the basic SBA loan requirements, give us a call and we can start the process. If you don’t qualify for an SBA loan, you may still be able to secure the capital you need through other sources.