Small Business Administration (SBA) Loans 101: Requirements and Eligibility

Have you been thinking about starting a small business but don’t know where to start? Or do you have plans to expand your current business, but don’t have the extra funds? If so, then an SBA loan may be the right solution for you! SBA loans are business loans guaranteed by the U.S. Small Business Administration. They offer multiple SBA funding programs and can provide up to 85% of the loan amount provided through SBA approved lenders such as Wallis Bank.

 

What is an SBA loan?

An SBA loan is a business loan that is partially guaranteed by the US government through the U.S. Small Business Administration. Its goal is to mitigate the risk associated with a loan for the financial institution that is issuing the loan. It’s important to note that the SBA is not actually lending, but is rather providing a guarantee to the lending institution. They work with approved financial institutions, which issue the loans under various SBA lending programs. Approved SBA lenders, like Wallis Bank, are well-versed in the products available under the SBA loan programs and can help you find the product that is the right fit for your business. 

SBA Loan Programs

• 7(a) Loan
  • SBA 7(a) is one of the most prominent loan programs that helps with new and existing business financing of up to $5 million. The loan can be used towards the acquisition of land, building, equipment and supplies, refinancing existing debt, renovations, short term working capital, and more.

• SBA 504 Loan
  • The SBA 504 program offers fixed rate and long term real estate financing up to $5.5 million. Financing could be used towards the acquisition of commercial real estate and associated furniture, fixtures, equipment, renovation as well as soft cost.

• Microloan
  • Microloan offers financing up to $50,000 for small startups and existing businesses.

• Disaster loan
  • Disaster loan offers a low-interest loan up to $2 million directly from the SBA to replace and repair damaged assets after a declared disaster.

 

Am I eligible for an SBA loan?

The first step in obtaining an SBA loan will be to get with your local approved SBA lender and discuss your needs. The lender will access your request and look to see if you meet the eligibility requirements as outlined by the SBA. Once you know you are eligible for an SBA loan, you can apply directly with the lender.

SBA loans are available to borrowers who meet the following loan requirements:

• The business must be based in the United States and owned by a lawful U.S. citizen or Lawful Permanent Resident (who is at least 21 years old).
• No bankruptcies or foreclosures in the past 3 years
•  Must be current on all government-related loans
• No recent charge-offs or settlements
• No outstanding tax liens
• The business must be for-profit in an industry that is eligible
• The borrower/owner must have invested equity in the business
• Only small businesses qualify. Size requirements are dependent upon the industry and the number of employees and annual receipts
• Loan application history showing that the borrower cannot get the same capital on reasonable terms anywhere else.

 

What information is required when I apply for an SBA loan?

There are several documents you will need when you apply for a small business loan. The main goal of these documents will be to show that your business is stable, viable, and that you have a record of paying your bills. Below is a list of possible documents that may be required.  In addition to these documents, there may be other requirements from the lender providing the loan.

 Examples of documents you may have to provide include: 

• A well-deserved business plan
• Resumes/information of key personnel
• A business certificate or license
• A business credit report
• Business tax returns
• Business profit and loss statement
• Projected financial statements
• A business debt schedule
• Business lease agreement
• Personal tax returns
• Personal financial statements for anyone who owns 20 percent or more of the business

 In addition, lenders may require both personal and business credit scores.

 If you are not sure if your small business has established credit, or a credit file at all, work on establishing credit in the name of your business. This will help you before you begin the loan application process.

 You should also request to view your personal and business credit reports and review them for accuracy. By doing this ahead of time, you can make sure you don’t run into any hurdles during the application process. Keep in mind, if your credit score is low, that does not mean you can not get an SBA loan. 

 

What criteria will be used to assess my loan application?

The lender will use various documents to determine the overall strength of your application. A comprehensive and complete loan application is key to making sure your process goes smoothly. Make sure you have sufficient financial information and a well-thought-out business plan before applying. When you have all this information gathered, the lender will assess the application and the request and determine if the loan can be approved. 

 What the lender will use to assess your application:

 Reputation and credit history of the applicant/associates

• Reputation and credit history of the business (if applicable)
• Management Experience
• The strength of the business
• Past and projected earnings from the business
• The ability to repay loans with business earnings
• Sufficient invested equity for operation
• Long-term success potential
• The nature and value of all collateral

 

The SBA provides an opportunity to fulfill the American Dream of owning and operating a small business. Many small businesses have started out with the assistance of the SBA such as FedEx, Nike, and Apple, to name a few, and have become large multinational corporations.  All you have to do is take the first step.  

 At Wallis Bank, we take pride in our expertise in assisting small businesses in growing to the next level. As an SBA Preferred Lender, we are experts in SBA lending. Take the first step to fulfilling your dreams and contact us today for a one-on-one consultation.