SBA Loan Eligibility Criteria

What is the best way to go about getting a loan from the SBA?

Answer: Contrary to popular belief, the Federal Small Business Administration or SBA does not provide loans but merely provides loan guarantees on loans made by its lending partners (Banks, Community Development Organizations, Microlending Institutions and other lenders). There are several SBA loan programs and the requirements for each program vary. But, like other business loans, collateral, cash flow, credit history and personal guarantees are typical considerations with SBA guaranteed loans. SBA-backed loans range from less than $10,000 to over $1 million. The SBA’s loan guaranty requirements and practices can change as the U.S. Government alters its fiscal policy and priorities to meet current economic conditions; therefore, past policy cannot always be relied upon when seeking financing in the current market.

Generally, a bank officer with an SBA lending partner is the best resource for details on the current requirements of SBA loan programs and evaluating which loan program would be the best fit for a particular business. However, the SBA does provide a pre-qualification program through its network of Small Business Development Centers (SBDC’s) and other third parties to help businesses determine whether they can qualify for an SBA guaranteed loan. You can review information on the SBA loan programs, the pre-qualification program, local lenders, and financing basics at the following websites:

SBA certified local lenders can found by contacting the local SBA office near you:

Of course, securing small business financing from banks and other traditional lenders is a significant challenge in a tight credit market like we have today, but banks aren’t the only source of financing for a small business. Small business financing can come from a variety of sources including the business owner(s), relatives, friends, business associates, business partners, banks, leasing companies, federal and state agencies, angel investors, and venture capital firms. The amount required, available collateral, and other factors will affect the source of financing, but small amounts typically come from home-equity lines of credit, credit cards, savings accounts, relatives, friends, professional associates or business partners, while larger amounts typically come from banks, leasing companies, government agencies, angel investors and venture capital firms.

A bank or other lender, generally, considers five things in a loan decision: borrowing capacity, invested capital, collateral, business and industry economic conditions, and character of the borrower. These factors, including the personal guarantee of a small business owner, can often overcome a lack of credit history or poor credit in certain situations. Also, lending criteria and near-term goals in lending money vary among financial institutions (banks, government, leasing companies, etc.), so it pays to shop around.

While you may not have had any success with banks, generally, the first place to start looking for a loan is your local banker. Local banks offer traditional financing, special minority and local small business programs, and, as we discussed above, government (SBA) financing options that require you to work through a traditional lender.

Angel investors: Some angel investors often look for smaller investments (as low as $50,000). Angel investors and venture capital firms expect a significant return on their capital and may expect an equity position in the business, but are often the best resource for financing a new business. The following are related websites:

Equipment leasing companies often have easier credit terms than banks. You can locate these companies in the Yellow Pages.

Other small business financing considerations:

Banks, the government, and other lenders generally require a business plan to understand how you plan to repay any debt. Typically, business plan information flows into a loan proposal. You will likely need a written plan to professionally present your company to lenders. Your local accountant or CPA may be of assistance with your financial projections and business plan; but, for free professional assistance, the Federal Small Business Administration (SBA) sponsors Small Business Development Centers (SBDC’s) that provide personal assistance with business plans and the volunteer Service Corps of Retired Executives (SCORE) offers small business services. The following will help you find SBA websites for your area:

Sample plans and business plan information:

Loan Proposals:

Published: July 10, 2013
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Bill Wortman

As the Chief Business Consultant at BizCoachingOnDemand.com, Bill has over 40 years of business experience. He's held multiple executive-level positions and fulfilled the role of CFO at large, publicly-held (NYSE, NASDAQA, and AMEX) corporations. In addition, he's also been an owner of several successful private ventures in real estate and in the automotive industry.