SBA 7a Loans – SBA Credit Criteria
An exhaustively researched guide to SBA 7a loans.
Meeting both the Lender & the SBA Credit Criteria for an SBA 7a Loan
Note that lenders have their own eligibility standards (in addition to those imposed by the SBA), and that you can be turned down for an SBA loan at one lender, and approved at another, despite meeting SBA criteria.
Each lender sets their own credit requirements, limits and industry concentrations. This is where an experienced Commercial Loan Broker with deep lender relationships like Speritas Capital Partners can add a lot of value by knowing the best SBA lenders for your industry & situation.
Two Source Documents for SBA Credit Criteria
The SBA credit criteria and standards for 7a loans are very clear and are detailed in several public documents, including the SBA’s 413 page long Standard Operating Procedure document SOP 50 10 5 (J), updated for January 2018. The 35 page section on credit criteria begins on page 170.
If you don’t want to read all 35 pages in the SOP, the policies that make up SBA’s credit standards are also well summarized and outlined in Title 13 Code of Federal Regulations Chapter I § Part 120.150.
This CFR section provides procedural guidance as to what the Lender should or must consider when analyzing any request for financial assistance that will be guaranteed by SBA.
According to the SBA, a Lender must analyze each application in a commercially reasonable manner, consistent with prudent lending standards.
Cash Flow is King
The cash flow of the Applicant is the primary source of repayment, not the liquidation of collateral. Thus, if the Lender’s financial analysis demonstrates that the Applicant lacks reasonable assurance of repayment in a timely manner from the cash flow of the business, the loan request must be declined, regardless of the collateral available or outside sources of cash
Call or email Speritas Capital Partners and we can quickly let you know if you are eligible and if you are likely to meet the SBA’s credit criteria based on a simple submission of your financial documents.
What is the Credit Criteria for SBA Loans?
The applicant (including an Operating Company) must be creditworthy. Loans must be so sound as to reasonably assure repayment.
The information below is taken directly from the Code of Federal Regulations. Text in italics is provided for clarification by Speritas Capital Partners CEO, Jeff Bardos.
SBA will consider:
(a) Character, reputation, and credit history of the applicant (and the Operating Company, if applicable), its Associates, and guarantors;
You must have good credit. Recommended FICO is 700, but some PLPs (preferred lenders) will go lower, some as low as 650.
(b) Experience and depth of management;
If acquiring a business you should have experience in that business/industry.
(c) Strength of the business;
(d) Past earnings, projected cash flow, and future prospects;
The SBA and the lender will want to see three years of data.
(e) Ability to repay the loan with earnings from the business;
You must generate enough cash flow to cover the monthly payments/interest.
(f) Sufficient invested equity to operate on a sound financial basis;
that is, equity already invested or available to invest, generally a minimum of 10%.
(g) Potential for long-term success;
You must have a business plan that makes sense.
(h) Nature and value of collateral (although inadequate collateral will not be the sole reason for denial of a loan request); and
(i) The effect any affiliates (as defined in part 121 of this chapter) may have on the ultimate repayment ability of the applicant.
Before a Lender will Assess your Creditworthiness, you must first…
Meet basic eligibility requirements.
Be an eligible business type.
Learn more about our SBA White Paper Sources.
You need a strategic, cost effective solution to your financing needs and a funding partner you can trust. Let us put our decades of banking and structuring experience to work for you – with no upfront fees. Contact Speritas Capital Partners about your eligibility for an SBA loan today.
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