How to Qualify for an SBA 7(a) Loan

The SBA 7(a) program is the U.S. Small Business Administration's main loan program. The SBA doesn't lend the money itself: it guarantees part of a loan made by an approved lender, which lets that lender offer longer terms and lower rates than it otherwise would. Loans can go up to $5 million.

Basic eligibility

• A for-profit business operating in the United States
• Meets the SBA's size standards for its industry (most small businesses do)
• A sound business purpose for the funds, such as working capital, equipment, real estate, or buying a business
• Owners have invested their own time or money in the business
• The business can't reasonably get the same credit elsewhere on reasonable terms

Businesses that usually aren't eligible

Some business types are excluded from the 7(a) program regardless of their finances. Common examples:

• Nonprofit organizations
• Passive businesses, such as owning rental real estate as an investment
• Lending and investment businesses
• Businesses primarily engaged in gambling or speculation
• Businesses located outside the United States

If you invest in rental property, financing built for investors, such as a DSCR loan, is usually a better fit than an SBA loan.

What lenders look at

On top of the SBA's rules, each lender applies its own credit standards. Most look closely at:

• Time in business: two years or more is typical. Startups can qualify, but usually need strong credit, industry experience and a business plan.
• Personal credit of the owners: many lenders look for scores in the high 600s or above.
• Cash flow: enough steady revenue to cover the new payment, which lenders measure with a debt service coverage ratio.
• Personal guarantees: anyone who owns 20% or more of the business generally has to guarantee the loan.
• Collateral: lenders take available business assets as collateral, and sometimes personal assets for larger loans.

Do you need a down payment?

Not always. For many working capital and equipment loans to established businesses, no separate down payment is required. For startups and business acquisitions, lenders usually expect the buyer to put in some of their own money, often around 10% of the project, though the exact amount depends on the deal and the lender.

Documents to get ready

• Business and personal tax returns (often the last three years)
• Year-to-date profit and loss statement and balance sheet
• Recent business bank statements
• A schedule of existing business debts
• Business licenses, formation documents and your EIN
• A business plan and projections, if the business is new

How long it takes

SBA loans take longer than most financing because of the extra paperwork. Several weeks to a few months from application to funding is common. If you need money faster, a line of credit or revenue-based capital may bridge the gap while an SBA application is in progress.

Improving your chances

• Separate business and personal finances, and keep your books current
• Pay down revolving balances before applying to improve your credit profile
• Know exactly how much you need and what it's for. Lenders want a specific use of funds.
• Gather documents before you apply so underwriting doesn't stall

GoSwiftFund connects SBA 7(a) applicants with lending partners for requests from $30,000 to $5,000,000. Checking your options won't affect your credit score.