The SBA, or Small Business Administration, exists to help entrepreneurs get their small businesses started. Therefore, they offer various loan options: SBA 7(a), SBA 504, and microloans. However, certain criteria must be met to qualify for these loans.
In this blog, we’ll explain more about these loans and the SBA requirements for each one.
SBA Loan Options
The SBA offers several loan programs designed to help small businesses.
• SBA 7(a): max amount $5 million, guarantees a portion of the total loan amount, limits fees, and caps interest rates.
• SBA 504: max amount $5.5 million, can be used to purchase/upgrade real estate, equipment, and other assets
• Microloans: max amount $50,000, can be used to help small businesses start up or expand
General Requirements for Funding
Certain eligibility criteria must be met to qualify for funding. First of all, your lender will want to review the following:
• Personal and business bank statements
• Personal and business credit scores
• Personal and business tax returns (if applicable)
• Business financial statements
Some lenders also request the following:
• Business plan
• Articles of incorporation
• Business licenses
• Financial forecasts and statements
• Franchise documentation
• Commercial lease
SBA Requirements for Funding
In addition to the above, each type of funding has certain SBA requirements that must be met. These requirements are outlined below:
SBA 7(a) Loan
To qualify for an SBA 7(a) loan, your business must:
• Be for-profit
• Fall under the SBA’s definition of “small business”
• Be engaged in or propose to do business in the United States or its territories
• Have invested equity
• Explored alternative resources such as personal assets before applying
• Be able to prove your need for funding
• Use the funds for business
• Not be delinquent on debts owed to the United States government
If your business is engaged in illegal activity, speculation, investment, multi-sales distribution, lending, or loan packaging, or the owner is on parole, it is disqualified automatically from consideration.
The funds must be used for the following:
• Short- and long-term working capital
• Purchase of equipment, furniture, etc
• Purchase of supplies, materials, inventory, etc
• Purchase of real estate
• Construction or renovation of buildings
• Establish a new business or acquire an existing one
SBA 504 Loans
The SBA requirements for 504 loans are as follows:
• Operate for-profit in the United States or territories
• Have a net worth of under $15 million
• Average income of under $5 million for the previous 2 years
There are other eligibility requirements, including having a viable business plan, good character, falling within size guidelines, qualified management expertise, and being able to repay the loan.
Businesses engaged in non-profit, speculative, or passive activities do not qualify for SBA 504 funds.
The SBA grants authority to intermediaries to issue microloans, which are smaller loans of under $50,000. Certain conditions exist between the SBA and the intermediaries and the intermediaries and the borrowers. Typically, the borrower must provide collateral and a personal guarantee that the loan will be repaid.
Business owners must be willing to discuss the following:
• Personal credit score
• Type of business
• Bank statements
• Personal liabilities
• Income tax returns
The proceeds must be used to repair/rebuild, enhance/improve, or re-open a small business. The funds cannot be used to purchase real estate or pay off existing debt.
Are You Ready to Apply for SBA Funds?
If you are interested in applying for SBA funds, you must keep these SBA requirements in mind. Scarlan Capital Group will be happy to help you find the funds you need.