Is it hard to get approved for a SBA loan?
You may not qualify if you're lacking sufficient collateral to secure your loan, have too much outstanding debt or can't show your ability to repay new financing. What credit score is needed for an SBA loan? In general, you'll need good credit — a personal credit score of 690 or higher — to get an SBA loan.
The most common reasons SBA loans are denied are poor credit, too much existing debt, or insufficient collateral. Other reasons include: Prior bankruptcy. Negative taxable income.
Many statistics say that large banks approve SBA loans at rates as low as 20-30%, while smaller banks approve SBA loans at around 40% or less. All this to say: SBA loan approval rates hover at half or below all loan applications that are submitted.
Hard to qualify
Typically, you'll need several years in business, strong business finances and a good credit history to qualify.
SBA Express loans, part of the SBA's 7(a) loan program, offer the easiest application process and the fastest approval times among all SBA loans. These loans, with payoff periods as long as 25 years, are designed for purposes such as refinancing debt, buying equipment, or improving real estate.
Many businesses can't qualify for an SBA loan, but that doesn't mean there aren't other options available. Once you review why your application was rejected, you can choose to apply again or explore alternatives.
The minimum credit score required for an SBA loan depends on the type of loan. For SBA Microloans, the minimum credit score is typically between 620-640. For SBA 7(a) loans, the minimum credit score is typically 640, but borrowers may find greater success if they can boost their credit score into the 680+ range.
Failing to meet a lender's eligibility requirements for a business loan can result in denial. All lenders have specific criteria related to credit scores, annual revenue, time in business and other factors. What to do: It's important to review the eligibility requirements of potential lenders before applying.
On average, most SBA loans take 30 to 90 days from applying to funding. 7(a) loan subtypes are backed directly by the SBA. The SBA's turnaround time is 2 to 10 business days, but approval from your chosen lender can take 30 to 60 days. Microloans are loans for smaller amounts of $50,000 or less.
SBA loans are generally attractive to small business owners because of their guaranties and interest rate caps. However, drawbacks include long loan closing processes and collateral requirements.
What is the average SBA loan amount?
While you can get up to $5 million for a standard SBA 7(a) loan, most borrowers in 2022 took out just under a million dollars at $999,210. The average for all SBA 7(a) loans, including the Small Loan and Express programs, was $538,903. Express loans, which are limited to a $500,000 maximum, averaged $97,097 in 2022.
Normally, your personal credit report shouldn't be impacted by a business loan, even if you've personally guaranteed the loan. Business debt and payment history do not affect your credit score, unless the business defaults on the loan, in which case your personal credit can be negatively impacted.
- Be an operating business.
- Operate for profit.
- Be located in the U.S.
- Be small under SBA size requirements.
- Not be a type of ineligible business.
- Not be able to obtain the desired credit on reasonable terms from non-federal, non-state, and non-local government sources.
7(a) Small loans exclude: Standard 7(a) loans, SBA Express, Export Express, CAPLines, Export Working Capital Program (EWCP), and Pilot Program loans. For loans $50,000 or less: SBA does not require collateral, except for International Trade loans, which have different requirements.
The 7(a) Loan Program, SBA's primary business loan program, provides loan guaranties to lenders that allow them to provide financial help for small businesses with special requirements. 7(a) loans can be used for: Acquiring, refinancing, or improving real estate and buildings. Short- and long-term working capital.
SBA guidelines state that a borrower has to wait 90 days after receiving a denial notice before they can reapply for an SBA loan. If you need funding more quickly than 90 days, finding a new lender may be the best idea for you.
Applicants for the COVID-19 Economic Injury Disaster Loan (EIDL) may have been eligible to receive up to $15,000 in funding from SBA that did not need to be repaid. These "advances" are similar to a grant, but without the typical requirements that come with a U.S. government grant.
Instead of a personal credit score, the SBA uses the FICO Small Business Scoring Service (SBSS) when evaluating 7(a) loan applicants. The system calculates the business owner's credit bureau data, financials and other factors to produce a number between 0 and 300.
While there's no official required SBA loan minimum credit score from the Small Business Administration, lenders will often set minimum credit score requirements for both personal and business. An SBSS of 140 to 160+ or a personal score of 620 to 640+ are commonly needed to qualify.
In general, eligibility is based on what a business does to receive its income, the character of its ownership, and where the business operates. Normally, businesses must meet SBA size standards, be able to repay, and have a sound business purpose. Even those with bad credit may qualify for startup funding.
How long do you have to pay back an SBA loan?
The maximum loan amount for an SBA 7(a) loan is $5 million and the maximum repayment period is 25 years, though most loans carry a repayment term of up to 10 years.
Once the SBA approves you for the loan, the lender will send out a commitment letter or loan agreement that outlines the loan's terms, including the loan amount, interest rate, repayment period, and other terms. Review and sign the document only if and when you find the terms favorable.
Loan Disbursem*nt
The final step in the SBA loan application process is disbursem*nt. After approval, the lender will disburse the funds in days or a few weeks. The funds can be used for various purposes, including working capital, purchase of equipment or inventory, and business expansion.
First, the lender will attempt to collect the debt. If it's unsuccessful, the lender may seize your collateral to recover its losses. The Small Business Administration may step in and repay the lender—the SBA guarantees a portion of the loan—and then seek repayment from you. Yet, that can be just the beginning.
SBA loans are administered by preapproved lenders, with the SBA guaranteeing up to 75% of the loan. Loan proceeds are not viewed as taxable income, but the interest paid on the loan usually can be deducted as a business expense.
