Who is Eligible for an SBA Loan?
May 1st, 2022
Can I get an SBA loan?
Small Business Administration (SBA) loans are some of the most flexible and attainable financing options for small business owners. Loans made through the SBA 7(a) program can be used for many business purposes, including business acquisition, working capital, expansion, or equipment purchases. However, many current or potential small business owners are unaware of who is eligible for an SBA loan or how to apply for one.
To help you decide if an SBA loan is right for you, let’s review:
- What is an SBA loan?
- Who is eligible for an SBA loan?
- Is it hard to get an SBA loan?
- What disqualifies someone from getting an SBA loan?
- What fees and loan terms should I expect?
- How to apply for an SBA loan?
This information should assist any current or prospective business owner determine if an SBA loan is right for them.
What is an SBA Loan?
An SBA loan is a small business loan that is at partially guaranteed by the U. S. Small Business Administration. The SBA’s backing helps offset the higher risks inherent in lending to small firms. An SBA loan should be issued by qualified lenders, and SBA-backed funding typically has a longer maturity and reasonable interest rates, which makes them very appealing financial vehicles for companies in need of capital.
Who is Eligible for an SBA Loan?
An SBA loan can only be granted to a registered legal business entity that meets the following criteria:
- The business must be “for profit;”
- The firm must be located within the United States and the owners of the business must be U.S. Citizens and/or Legal Residents;
- The business must be considered “small” under SBA’s Size Standards. The standards differ based on industry but generally if you have Net Profit After Taxes of less than $5 million for last two years you should be eligible;
- The applicant must demonstrate the need for the SBA to provide a guaranty. In other words, if a clear source of funds is available from another non-federal source (such as a bank or personal liquid assets), an SBA loan is not available;
- Neither the applicant business nor its owners should be delinquent on any existing U.S. government debt, such as taxes or student loans. Delinquent debt should be brought current prior to application.
Is it Hard to get an SBA Loan?
There is no one-size-fits all plan to get SBA funding, and the relative ease of getting a loan will be based on your ability to put together a strong case to a lender. If you are organized, have a well-defined business need, and meet the criteria for SBA lending easily, then the process should be straightforward.
If you are missing some key historical pieces of information or must work to meet the qualifications, it might be a more difficult process for your business. Start early and be patient. Additionally, one of the minor drawbacks to applying for an SBA loan is that there is often a great deal of paperwork, and sometimes non-preferred lenders take longer for approval. It is better to find an SBA Preferred Lender to work with.
What Can Disqualify Someone from Getting an SBA Loan?
While there are certain requirements for an SBA loan, there are also some individual and entity statuses that can potentially disqualify an SBA applicant. These can include:
- If your business is engaged in illegal activities, gambling, or multi-sales distribution.
- The business is considered ‘passive’ (think rental real estate) or holds a portfolio of financial instruments (like home or auto loans).
- If you or an equity holder in your business is on parole, or has been convicted of a felony in the last year.
- If you cannot show the ability to repay the SBA loan.
There are other considerations that lenders will make during your SBA loan application process, and they ultimately have the final say. However, these four elements are things you and your business partners must make sure to avoid if you want to be considered for SBA lending.
What Fees and Loan terms should I expect?
One of the biggest benefits of SBA loans are the longer maturities offered. The longer the maturity of a loan, the lower the monthly payment. Most banks offer five years on a loan to purchase equipment. SBA lenders can offer 10 years or more based on the ‘useful life’ of the underlying equipment, and can offer 25 years on the purchase of business real estate.
Loan applicants will be expected to cover most third-party fees including appraisal, UCC filing fees, title insurance, etc. Most SBA lenders also charge a “packaging fee” which is regulated somewhat by SBA but varies with the loan size.
How to Apply for an SBA Loan
The basic steps to getting an SBA loan typically look like this:
- Meet with a qualified lender to discuss your business needs and review eligibility.
- If buying a business, opening a second location, or making major changes to your business you will need a business plan that includes projections with detailed assumptions.
- Gather your qualification documents and submit your application.
- Answer any questions or provide additional documents as instructed by your lender.
- Close your SBA loan.
It should be noted that each of these steps requires attention to detail and minor missteps may delay your loan process. The good news is that the best SBA preferred lenders will help you through each step, so use them as resources throughout your application process. This is especially helpful if you work with a local lender that has an SBA lending division to give your company the attention it deserves.
Community West Bank is Your SBA Preferred Lender
At Community West Bank, our team of experts is dedicated to empowering small businesses by providing the best financial resources possible. Our SBA lending program is designed to help companies at all points of the entrepreneurial journey, and we are proud to be a qualified and preferred SBA lender.
If you are interested in learning more about how you can apply for an SBA loan with us or would just like to learn more about the process, please reach out to us today. We’d love to help you get the application process started.