SBA 7(a) Loans: SBA Credit Critera
The SBA 7a Loan White Paper: An Exhaustively Researched Guide to 7a Loans for Borrowers Based on Primary US Government Sources
By Jeff Bardos, CEO, Speritas Capital
January 4, 2021 – Connecticut
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How to Meet 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.
This is because each lender sets their own credit requirements, limits and industry concentrations.
In situations like these, 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 Primary Federal Sources 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 587 page long Standard Operating Procedure document SOP 50 10 6 updated for October 2020.
If you don’t want to read all 35 pages on credit criteria 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.
And from there it gets complicated!
Cash Flow is King
The cash flow of the Applicant is the primary source of repayment, not the liquidation of collateral.
Therefore, 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.)
Questions about SBA 7a Loans? Schedule a call with Jeff Bardos, send an email, or call/text 203-247-4358.
What is the Credit Criteria for SBA 7a Loans?
CFR §120.150
Basically, “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 - CFR §120.150
Text in italics is provided for clarification by Speritas Capital Partners CEO, Jeff Bardos.
SBA will consider the following Lending Criteria:
(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.
Other 7a Eligibility Requirements…
Before a Lender will assess your creditworthiness, you must first meet basic eligibility requirements.
You can find additional eligibility information on our SBA 7a Eligibility Explained page and on our Ineligible Businesses pages in this White Paper.
Want to go to the source? View our SBA White Paper Sources List (with links), on our White Paper homepage.
About the Author
Jeff Bardos, CEO, Speritas Capital Partners
Jeff has over 30 years of experience in the financial services industry. After graduating from the Columbia Business School, he joined the New York Federal Reserve Bank as a senior staff member in Bank Supervision, leading the Bank Analysis department. From the nation’s central bank, Jeff moved into the private sector, working at senior levels in commercial banking, retail banking and risk management. He has also played senior founding roles in several start-ups. Learn more about Jeff.
CONTACT INFO
Jeffrey Bardos
CEO Speritas Capital Partners
Call/text Jeff at 203-247-4358
Email Jeff with your financing questions
Schedule a call with Jeff using our online scheduling tool.
Speritas Capital Partners specializes in complex credit, collateral and cash flow situations and we never take upfront fees.
Because Speritas Capital is a debt advisory firm, we have access to a wide variety of lending structures. We’re not beholden to any one lender or structure so we can use our creativity and experience to design a structure that truly fits the needs of our clients.
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