Who Qualifies for an SBA Loan?

Finding reliable funding that meets your needs and has reasonable terms for your small business is no small task. Many small businesses will go through a long process of being denied or even rejecting terms that are not ideal for their business plans. When small businesses exhaust their other funding options, they often turn to 7(a) loans for financing. The small business administration offers the 7(a) loan program. The SBA uses this unique program to provide financial assistance options for small businesses. SBA 7(a) loan program has specific requirements for eligibility that must be met to qualify. Learn more about the 7(a) loan programs to see if your business meets the SBA loan qualifications necessary for funding.

SBA 7(a) Eligibility Requirements

A big part of 7(a) loans is the opportunity to receive funding despite being turned down by other lenders. Because of this initial non-SBA loan ineligibility, several requirements must be met to ensure that you and your business are not delinquent or high risk, just lacking in pristine credit.

Requirements for Qualification

Effectively, there are specific requirements to ensure that you meet the initial conditions for SBA 7(a) loans. For example, you cannot be on parole if you seek a 7(a) loan. The entire list of qualifications for SBA loans may seem lengthy, but you will receive the best rate and terms by providing as much information as possible. Before you even look over the eligibility requirements, check and see if your business is in an also approved industry because not all are. If so, then determine if you meet the other SBA loan qualifications.

Requirements for Industries

The SBA approves of numerous businesses so long as they meet the minimum eligibility requirements. However, there are also specific industries with business entities that the SBA considers too risky, and other industries present a conflict of interest too great to bear.

It shouldn’t be surprising that illegal firms are ineligible just by way of poor character. Pyramid schemes and other multi-level marketing schemes are not eligible because they are not classified as small businesses; instead, they are listed as independent contractors. Another ineligible industry is any government-owned entity. Since the SBA is also government-owned, a debatable conflict of interest is present with government-owned entities. Religious organizations also present a conflict of interest due to the necessary separation of church and state and are equally ineligible.

Other industries ineligible for the SBA 7(a) loan program include:

  • Speculation-based businesses
  • Real estate firms
  • Nonprofit organizations
  • Multi-sales distribution industries
  • Dealers of rare stamps and coins
  • Gambling
  • Marketing and consumer cooperatives
  • Lending and loan packaging firms

Requirements for Collateral

If an SBA loan is approved, collateral is then expected to secure the loan. Many businesses don’t have the required collateral by way of their company assets alone. Collateral may be collected from both business and personal assets and often is. Applicants should keep in mind that liens are often taken out on residential property as a way to secure the loan entirely. However, if you have sufficient cash flow and no collateral is available in either business or personal assets, it does not immediately disqualify you from an SBA 7(a) loan.

Requirements for Personal Credit

Your personal credit impacts your business credit; there’s no way around it.  However, the SBA knows that you have been denied other non-SBA loans for a reason and is looking for more detailed information. The SBA weighs the following factors when determining if you are eligible for a 7(a) loan:

  • Three years of tax returns
  • At least 12 months of bank statements
  • Number of loan applications submitted
  • Credit score and full report
  • Debts to income ratio
  • No recent foreclosures, tax liens, or bankruptcies

Other Qualifying Considerations

Because you and your business are still a risky investment for both the SBA and the commercial lender, you may be asked to provide additional information and documentation as you work through the process. The more responsive you are and the more accurate the paperwork is, the more confidence lenders will have in you and your business. Your quick replies and attention to detail also speak volumes about your professional capabilities.

Beneficial Business Qualities

Other qualities that will help build faith in your business and meet SBA loan qualifications include:

  • Business records for two or more years
  • Ability to make a down payment of 10% or more
  • Sufficient working capital
  • Sufficient cash flow to debt obligations
  • A good character standing as evaluated by SBA

Start-Up Guidelines

If you are a start-up, you are an even greater risk as a borrower, through no fault of your own, though, many lenders understand that you have to start somewhere. However, you must meet the standard SBA 7(a) loan requirements and check a few more boxes to prove your potential as a successful business.

Many start-ups are advised to save up before applying to include some of their own funds as an investment and reasonable assets as collateral. Be ready to provide a solid and detailed business plan to assure lenders that you know what you’re doing as a business owner. Craft a professional explanation of how you’ll use the money you’re borrowing. Start-up evaluation can be a scrutinous process, so be sure you are prepared.

Finance With DCV Franchise Group

For best results, before you begin the actual application process, do a self-check to determine whether or not you meet the SBA loan qualifications for the funding you require. If your initial investigation returns positive results, move forward with the DCV Franchise Group to determine the best match for your business’s financing solution.

Experienced financiers at DCV are ready to answer any questions or offer a free, no-obligation consultation over the phone to help determine the best way to meet your financial needs. Contact DCV Franchise Group today for more information.