The Small Business Administration (SBA) offers various loan programs to help small businesses obtain financing. While the specific requirements for each loan program may vary, there are some general eligibility criteria that small businesses must meet to qualify for SBA loans. In this article, we will discuss the requirements for standard loans from the SBA.
- Size of Business
The SBA defines a small business based on the number of employees or the average annual revenue over the past three years, depending on the industry. Generally, a small business must have fewer than 500 employees and less than $7.5 million in average annual revenue to be eligible for standard SBA loans.
- Type of Business
The SBA has specific criteria for the types of businesses that are eligible for its loan programs. Generally, businesses that are engaged in illegal activities, nonprofits, and businesses involved in speculative activities are not eligible for SBA loans. In addition, some industries such as lending institutions, religious organizations, and gambling businesses are excluded from SBA loans.
- Use of Funds
The SBA provides loans to small businesses for specific purposes, including:
- Purchasing land or buildings
- Refinancing existing debt
- Purchasing equipment or inventory
- Starting a new business or expanding an existing business
The SBA requires borrowers to use the loan proceeds for the purpose for which they were obtained.
- Personal Credit Score
A good personal credit score is essential for obtaining an SBA loan. While the specific credit score required may vary, most lenders require a personal credit score of at least 650. A borrower’s credit history, including any delinquencies, bankruptcies, or foreclosures, is also evaluated.
- Collateral
Collateral is an asset that the borrower pledges to secure the loan. The SBA requires borrowers to provide collateral for standard loans, such as real estate or equipment, to secure the loan. If the borrower defaults on the loan, the lender may seize the collateral to recover its losses.
- Business Plan
To obtain an SBA loan, borrowers must provide a comprehensive business plan that outlines their goals and objectives, the products or services they offer, and their marketing strategy. The business plan should also include financial projections, such as cash flow statements, balance sheets, and income statements.
Conclusion
Obtaining an SBA loan can be an excellent way for small businesses to obtain financing to start or expand their business. To qualify for a standard SBA loan, businesses must meet certain eligibility criteria, including size, type of business, use of funds, personal credit score, collateral, and a comprehensive business plan. By meeting these requirements, small businesses can access the financing they need to achieve their goals and grow their business.