5 Things to Know About SBA Loan Credit Requirements

Ezra Cabrera

Updated: January 1, 2019
what are the sba7a credit score requirements?
Small business owners are constantly hearing about different financing options that are available to them, but among the most popular programs small business owners are aware of is SBA loans. The Small Business Administration (SBA) was founded in 1953 and has since provided billions of dollars in financing to the small business community. The most common SBA loan program utilized by small business owners is SBA’s 7(a) program. The most attractive attributes of this program are its long repayment terms and low-interest rates, which generally result in a low monthly payment for small business owners. However, many businesses find themselves rejected for this loan because they don’t meet the required sba 7a credit score requirements.

While SBA Loan programs are notorious for requiring a long list of documentation and can take months to go through the system, the “juice is worth the squeeze.” Although SBA Loan programs have this reputation, the facts are, if you work with the right lender, your application process can be smooth and swift.

To qualify for an SBA Loan, there are a handful of requirements that you need to meet. Below are the five most important requirements for obtaining an SBA Loan along with the documents needed to qualify for one.

1. Profitability

Maintaining a profitable business is crucial when applying for an SBA Loan. If your business is not profitable, it will be difficult to justify to a lender why they should provide you with financing. When it comes to SBA Loans, lenders will be more lenient than traditional bank loans, but profitability is still important. SBA Lenders will look towards your ability to service your debt and make your payments by calculating a (DSCR) or debt service coverage ratio. If your ratio is above a 1.10 then you are in great shape to pass a profitability test!

2. Business Trade Credit

Just like you have a personal credit score that’s based on your past trade history and credit utilization, your business has the same. Your business credit tracks how you’ve been paying your vendors, credit cards, as well as all of your other bills. If you are behind on your business bills, then your SBA lender is going to discover that. This makes it critical your accounts payable are current and up to date, and your utilization low so your business credit is on the same level as your personal credit.

Related: 6 Ways to Improve Your Business Credit Score

3. Organized Financials

Don’t underestimate the importance of organization when applying for an SBA Loan. Not only will you want to make sure that the process is easy for you, but an SBA lender will want to make sure you are on top of your business finances. If you are unable to produce reports on your business, lenders will reject your loan application.

4. Collateral

Most SBA loans will require that you have sufficient collateral to cover the loan amount. While some may rely less on collateral than others, it’s still important you have at least 50% collateral coverage when applying for an SBA Loan. An SBA lender will want to determine that your business can repay a loan, as well as ensure you have sufficient collateral for them to sell and get their money back. The most common forms of collateral are inventory, equipment, accounts receivable, and real estate.

Related: Why Do Lenders Need Personal Guarantees for SBA Loans?

5. Personal Credit Score

When applying for any type of financing, whether personal or business, your personal credit score will have an impact on your eligibility, your rates, and your repayment terms. In almost all circumstances you will have a higher probability of getting approved if you have a high credit score. SBA lenders will look deeply into your credit report to understand your score.

Many times a low score is driven by past due bills, other times credit utilization. It can even be from a lack of credit history. Whether you have a great credit score or not, It’s always wise to monitor your credit score.

You can use companies like Credit Sesame to check your credit score and while doing so, be sure to:

    1. Keep trades and credit utilization low
    2. Limit the number of times you apply for credit
    3. Pay bills on time. Even if it is the minimum payment!
    4. Keep old cards open. Don’t close them!
    5. Make sure that any past due bills are paid current

Now You Know What SBA 7a Credit Score Requirements Entail

SBA loans are a great financing option for growing businesses. Although the SBA 7a credit score requirements may still be unattainable for some, they can work on improving it and applying again. When approved, SBA loans can give you more than the cash you need to carry out your business operations and requirements. It will also allow you to expand, grow, and succeed in your chosen industry.

Ezra Cabrera
Ezra Neiel Cabrera has a bachelor’s degree in Business Administration with a major in Entrepreneurial Marketing. Over the last 3 years, she has been writing business-centric articles to help small business owners grow and expand. Ezra mainly writes for SMB Compass, but you can find some of her work in All Business, Small Biz Daily, LaunchHouse, Marketing2Business, and Clutch, among others. When she’s not writing, you’ll find her in bed eating cookies and binge-watching Netflix.

Related Articles