SBA 7(a) Loan Requirements and Eligibility Criteria + Checklist

Small businesses are the backbone of the American economy, yet many struggle to access the financing they need to grow and succeed. That’s where the Small Business Administration (SBA) comes in, offering a range of loan programs to support businesses of all sizes and industries.

One of the most popular options is the SBA 7(a) loan, which offers flexible terms, low interest rates, and ample funding to eligible businesses.

At SBG Funding, we specialize in helping businesses access this critical funding stream. We’ll explore the eligibility criteria for SBA 7(a) loans, the application process, and how SBG Funding can help your business needs!

What are SBA 7(a) Loan Eligibility Criteria?

Your business must meet several eligibility criteria to qualify for an SBA 7(a) loan.

Business Size and Type

The SBA defines a small business as one with fewer than 500 employees (or fewer than 1,500 for certain industries). Your business must fall within these size standards to be eligible for an SBA 7(a) loan.

Additionally, the SBA identifies eligible industries based on the North American Industry Classification System (NAICS).

Most for-profit businesses are eligible for SBA loan, in industries such as:

• construction,
• manufacturing,
• healthcare,
• HVAC,
• restaurants,
• automotive services,
• retail,
• veterinarian,
• trucking & transportation,
• beauty & wellness.

Location

To be eligible for an SBA 7(a) loan, your business must operate primarily in the United States or its territories. This means that at least 51% of your business’s operations and assets must be located within the United States. If you’re a U.S. citizen living abroad, your business may still qualify as long as it has a significant presence within the United States.

Time in Business

While there’s no strict minimum time in business requirement for an SBA 7(a) loan, lenders typically prefer businesses with a proven track record.

A minimum of two years in operation is typically preferred, demonstrating that your business has weathered the initial challenges of starting up and has a history of generating revenue.

However, startups may still be eligible if they can demonstrate strong financial projections and meet other eligibility requirements.

Financial Health

Your company must demonstrate strong financial health to qualify for an SBA 7(a) loan.

This includes factors such as creditworthiness, cash flow, and debt service coverage ratio. Your business credit score and personal credit score will be considered, and a minimum credit score of 640 is typically required.

However, higher FICO scores increase your chances of approval. Your business must also demonstrate sufficient cash flow to cover loan payments and other financial obligations. Lenders will typically look at your debt service coverage ratio, which measures your business’s ability to cover debt payments based on its cash flow.

Other eligibility criteria

• Owner’s Equity Investment:

The business owners must have invested their own time and money into the business to demonstrate their commitment to its success.

• Business Purpose:

The loan proceeds must be used for a sound business purpose, such as working capital, equipment purchases, business expansion, or real estate acquisition.

• Creditworthiness:

The business and its owners must have good credit history and demonstrate their ability to repay the loan. Learn how business debt and bankruptcy can affect your credit score!

• Collateral:

Although the SBA does not require a specific amount of collateral, the lender may require collateral as security for the loan. Collateral can include business assets, personal assets, or real estate.

• Personal Guarantee:

Owners with a 20% or more ownership stake in the business are typically required to provide a personal guarantee for the loan, which means they are personally responsible for repaying the loan if the business cannot.

• No Delinquencies on Government Loans:

The business and its owners must not have any delinquencies or defaults on government-backed loans, such as federal student loans or other SBA loans.

• Special Requirements for Specific Industries:

Some industries may have additional eligibility criteria, such as businesses involved in lending, gambling, or speculative activities.

• No Alternative Financing:

The business must demonstrate that it cannot obtain financing through alternative means, such as conventional bank loans, without causing undue hardship.

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Application Process and Required Documentation for SBA 7(a) loan

The application process for an SBA 7(a) loan can be complex, and a significant amount of documentation is required. However, working with SBG Funding can help streamline the process and increase your chances of success. Here are the key steps in the application process:

Loan Application Checklist

The SBA requires significant documentation as part of the loan application process. This includes financial statements for your business and personal finances, business and personal tax returns, a business plan, and a debt schedule.

Having these documents organized and readily available can help speed up the application process.

We have prepared a simple checklist for you below!

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SBA 7(a) Loan Application Checklist

Borrower Information Form:

• Complete SBA Form 1919, which is required for all associates of the business applicant, including owners with a 20% or more stake, all officers and directors, managing members, individuals responsible for day-to-day operations, and any person guaranteeing the loan.

Personal Background and Financial Statement:

• SBA Form 912: Statement of Personal History (if required after completing Form 1919)
• SBA Form 413: Personal Financial Statement (optional, but available for lenders to use)

Business Financial Statement:

• Last three years of Year-End Profit and Loss (P&L) Statements
• Last three years of Year-End Balance Sheets, including a detailed debt schedule
• Reconciliation of Net Worth
• Interim Balance Sheet
• Interim Profit & Loss Statements
• Projected Financial Statements, including month-to-month cash flow projections for at least one year

Business Certificate/License:

• Provide the original business license or certificate of doing business when closing the loan. If your business is a corporation, stamp the corporate seal on the SBA loan application form.

Loan Application History:

• Include records of any loans you may have applied for in the past.

Income Tax Returns:

• Include your business’s signed federal income tax returns for the previous three years.

Resumes:

• Provide personal resumes for each principal.

Business Overview and History:

• Include a history of the business and its challenges, explaining why the SBA loan is needed and how it will help the business.

Business Lease:

• Include a copy of the business lease or a note from the landlord outlining the terms of the proposed lease.

Additional Documents (If Purchasing an Existing Business):

• Current balance sheet and P&L statement of the business to be purchased
• Previous three years’ federal income tax returns of the business to be purchased
• Proposed Bill of Sale, including Terms of Sale
• Asking price with a schedule of inventory, machinery and equipment, furniture, and fixtures
• Franchise, jobber, or licensing agreements
• Proof of equity injection

Additional SBA forms may be required based on the specific use of proceeds or fees paid by the applicant to a loan package, broker, or agent

How SBG Funding Can Streamline the Application Process?

At SBG Funding, we have years of experience working with the SBA and can help streamline your application process. Our team will guide you through each step, ensuring that your application is complete and accurate and that all necessary documentation is included.

We’ll also help you navigate any potential roadblocks, such as incomplete or inaccurate documentation, to ensure your application is processed as quickly and smoothly as possible.

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Alternative Financing Options for Ineligible Businesses

While an SBA 7(a) loan is a popular financing option for many small businesses, not all businesses will be eligible. Feel free to check FAQ about SBA loans! However, there are other financing options available that may be a better fit for your business. At SBG Funding, we offer a range of alternative financing options, including:

Small Business Term Loan

A small business term loan provides a lump sum of funding that is repaid over a set term, typically 1-5 years. This can be a good option if you need funds for a specific project or investment, such as purchasing equipment or expanding your business.

Business Line of Credit

A business line of credit is a revolving credit facility that allows you to borrow up to a predetermined limit and pay interest only on the amount you borrow. This can be a good option if you require ongoing access to funds but don’t want to take out a large lump-sum loan.

Invoice Financing

Invoice financing allows you to borrow against your outstanding invoices, providing you with immediate cash flow to cover expenses while you wait for your customers to pay. This can be a good option if your business has a long cash conversion cycle or if you’re experiencing seasonal fluctuations in revenue.

Equipment Financing

Equipment financing allows you to borrow funds specifically for purchasing or leasing equipment for your business. This can be a good option if you need to upgrade or replace existing equipment or want to expand your business’s capabilities.

Bridge Capital

Bridge Capital provides short-term financing to bridge the gap between a current financial need and a future funding source. This can be a good option if you need funds quickly to cover a specific expense, such as a large purchase order or payroll expenses.

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Why Choose SBG Funding for Your SBA 7(a) Loan?

Partnering with SBG Funding can offer several advantages when applying for an SBA 7(a) loan. These include:

Expertise in Navigating the SBA 7(a) Loan Process

Our experienced team deeply understands the SBA loan process and can guide you through each step, from eligibility assessment to application submission. We’ll help ensure that your application is complete and accurate, increasing your chances of success.

Unmatched Support for New York Businesses

As a local lender, we understand the unique needs of New York businesses and can provide tailored financing solutions to meet your specific needs. Whether you’re looking to expand, upgrade, or invest, we can help.

Commitment to Serving Veteran-Owned, Minority-Owned, and Women-Owned Businesses

We’re proud to support businesses owned by veterans, minorities, and women. We understand the unique challenges these businesses face and can help navigate any special programs or incentives that may be available.

If you’re interested in applying for an SBA 7(a) loan or looking for alternative financing options to support your business, contact SBG Funding today. Our experienced team can help assess your eligibility, guide you through the application process, and provide ongoing support to ensure your success.