Qualify for a Small Business Loan: 12 SBA Loan Requirements You Need to Know

sba loan requirements

According to the latest research, only about 44 percent of small businesses actually survive beyond their fourth year. One of the main reasons these businesses do not succeed is a lack of funding.

Do you want your small business sticks around long-term? Of course, you do!

A small business loan can give you the funding you need to grow your business and ensure it survives into its fourth year and beyond.

Of all the different loan options out there, one of the best to consider is a Small Business Administration (or SBA) loan.

The list of SBA loan requirements can be a bit intimidating to some entrepreneurs. The more you know, though, the more likely you are to have your application approved.

Listed below are the most important SBA loan requirements you need to know before applying.

What is an SBA Loan?

An SBA loan is a type of small business loan that the U.S. government guarantees. With this guarantee, the Small Business Administration promises to pay a portion of the loan back in the event that you default on the loan.

There are several different types of SBA loans, including the following:

  • 7(a) loans
  • Export-assistance loans
  • Disaster loans
  • Microloans

Just about any business owner can benefit from an SBA loan. These loans are especially favorable to veterans, though. In fact, currently, there are no fees for veterans applying for loans of less than $150,000.

SBA Loan Requirements

SBA loans sound pretty great, right? They definitely come with a lot of benefits.

Because the government is backing these loans, though, lenders have to be pretty particular about who qualifies for one.

In order to have your loan application approved, you’ll need to meet the following requirements:

1. Basic Eligibility

First, you need to make sure you meet the basic eligibility requirements. These include the following:

  • Be a for-profit business
  • Be engaged in, or plan to be engaged in business in, the U.S. or U.S. territories
  • Have used alternative financial resources prior to seeking a loan
  • Already have reasonable owner equity to invest

Businesses that are primarily engaged in lobbying efforts or lending are ineligible for SBA loans, as are life insurance companies, passive income businesses, and speculative businesses.

2. Size Standards

In order to qualify as a small business, your business must meet the following criteria:

  • Have a small number of employees based on industry standards
  • Have a small amount of revenue based on industry standards
  • Have a net worth of less than $15 million or a net annual income of less than $5 million

The SBA also has a free tool available that helps to clarify whether your business is actually a small business.

3. Background Information

When you apply for an SBA loan, you’ll have to provide some basic background information on yourself.

This includes information regarding your previous addresses, citizenship status, and criminal record. Having a criminal record doesn’t bar you from qualifying for a loan, but your application will be evaluated more carefully.

4. Resume & Business Plan

You’ll need to provide a resume showcasing your past business experience. The SBA will also want to see a copy of your business plan to learn more about your business and how you intend to make it profitable.

5. Time in Business

The SBA will want to know how long you’ve been in business, too. There is no fixed time in business requirement. The longer you’ve been in business, though, the greater your chances are of having your application approved.

6. Tax Returns

Be prepared to provide copies of your business and personal income tax returns from the last three years. This allows them to verify your income and ensure that you’ll be able to pay back the money they loan you.

7. Personal Credit Score

A high personal credit score will work in your favor when it comes to qualifying for an SBA loan. In fact, a low personal credit score is one of the most common reasons why people don’t qualify. Having a high personal credit score is especially beneficial if your business is brand new and you haven’t had a lot of time to build credit.

8. Business Credit Score

That being said, you should still provide the SBA with information regarding your business credit score, too. Like your personal credit score, this provides proof of your ability to meet your financial obligations.

9. Financial & Bank Statements

The SBA will want to see copies of your most recent bank and financial statements. This lets them see how much cash you have in the bank. Your business’s financial statements also provide important information on your profits and losses, as well as your overall financial health.

10. Collateral

Collateral is not always required when applying for an SBA loan. If you can offer an asset as collateral, though, you’ll be more likely to have your loan application approved.

11. Personal Guarantee

A personal guarantee is a signed promise that you will pay the loan back with your personal assets in the event that the business cannot afford to pay it back. All SBA loans require a personal guarantee.

12. Legal Documents

Finally, you’ll need to provide copies of several legal documents, including the following:

  • Business license and registration
  • Articles of Incorporation or Organization
  • Franchise agreements
  • Leases for equipment or real estate
  • Third-party contracts

Have these documents readily available to submit along with your loan application.

Apply for an SBA Loan Today

As you can see, there’s a lot that goes into qualifying for an SBA loan.

The benefits that come with getting this type of loan far outweigh the costs, though. As long as you keep this list of SBA loan requirements in mind, you’ll have a much easier time having your loan application approved.

Are you ready to apply for an SBA loan? If so, we’re here to help at Signature Bank.

We make it easy for you to apply for SBA loans online, right from the comfort of your own home.

If you need extra help during the application process, feel free to contact us with any questions you may have.