One viable way to fund your startup is to get a loan from the SBA. Find the SBA loan requirements in an easy-to-follow format here.
Book a Consultation CallHow do you fund a startup in the middle of a global pandemic?
With a loan from the Small Business Administration, also known as the SBA!
Funding your scrappy start-up is no walk in park, even in normal times. Luckily, the SBA can help get your dream off the ground. If you are wondering about SBA loan requirements, you're in the right place!
However, you can find the SBA loan requirements in an easy-to-follow format here.
SBA Loan Requirements
If you weren't already aware, an SBA loan is not a loan directly from the SBA. It may be more accurate to call these loans SBA-backed loans. An SBA-approved bank will loan you the money, but the SBA guarantees the loans.
An SBA loan guarantee is no small matter. An SBA is a department within the U.S. government. Translation: an SBA guarantee is a government guarantee.
This fact alone allows the bank to offer you a significantly lower interest rate than most other conventional loans. SBA-backed loan rates can range from 3%-6% for a typical 7a loan, SBA's most popular.
Whichever type of SBA loan you choose, it's important to understand the basic pillars of loan eligibility. While each loan type will have specific additional qualifications, all SBA loans require the following:
Traditionally, you had to be a for-profit business to qualify for SBA funding. However, the pandemic forced changes within the SBA as well. Thanks to the CARES Act, non-profits were able to qualify for SBA help as well.
Unfortunately, the pandemic exploded the SBA requirements. The SBA lending has expanded in many ways, from loosening credit requirements to tightening interest rates to extending loan amounts to non-profits.
However, the fact remains, even though non-profits can now qualify, SBA loans continue to be reserved for business organizations, not private individuals.
Just because you are a U.S. citizen doesn't automatically entitle you to an SBA loan. Your business must be physically located within the United States.
If you are a U.S. resident living in New Guinea, you probably won't qualify for an SBA loan if you want to fund your online business.
So, to all the would-be dropshipping moguls wanting to make a fortune from their beachside laptop station: sorry, you're gonna have to find another way to fund your budding empire!
To a certain degree, every lender is making a bet on a borrower. They bet that you'll pay back the loan under the agreed-to conditions. To secure their bet, lenders will often need to see some type of collateral.
An SBA loan is no different. One way the government secures its bet on you is to have you prove you've invested equity. Essentially, they want to see some "skin in the game" on your end.
And it's not just any willy-nilly amount. There are specific equity requirements when it comes to an SBA loan application. Most of the specifications depend on whether you are a new or existing business.
For a new business, the SBA wants to see $1 for each $3 borrowed. This equity can be in the form of cash you've invested (so keep records!). Proof of equity can also come from business assets you've acquired for your business thus far, like equipment or commercial real estate.
As such, if you're looking to borrow $30,000 in the form of the ever-popular 7a loan program, be prepared to show that you've got $10,000 of provable equity invested.
For an existing business, equity requirements are more stringent. The SBA wants to see that you've gone into debt for your business. The requirement is $1 of debt to every $4 you're seeking to borrow.
So if you're seeking a $50,000 SBA loan, guess what? You'll need to show $12,500 in business debt that you've already invested.
Why the equity requirement? The SBA does not want someone who hasn't already invested in their business. It makes sense, right. If you woke up one morning and decide you want $50,000 from the SBA for a pipe dream, there's a good chance you won't pay it back!
Despite the measures you take to run a profitable business using SBA funds, you may still not succeed. With businesses folding every day because of the pandemic, you wouldn't be alone.
If you find yourself on the brink of bankruptcy, you will need help negotiating your SBA loan. The SBA attorneys at Protect Law Group can help you with all aspects of outstanding SBA loans. From repayment to loan deferment, we'll help you explore all of your options.
When you fill out your SBA loan application, they will want to see that you've sought out other financing options. More accurately, they want to see that you've exhausted your other options!
Understand, a loan is a type of liability, and, as with all liabilities, those who are taking a risk like to see that liability spread around a bit.
Moreover, other lenders involved in your business financing is also a kind of "vote" for your venture. Therefore, others have vouched for your dream and, most importantly, your creditworthiness. All of this makes you a safer bet for the SBA lenders.
The above four requirements are the major foundations for an SBA loan. To that end, from the 7a loan to SBA microloans, think of these requirements as prerequisites for all SBA funding.
All that said, your credit score matters. A lot. For instance, your business may be far along enough to have its own credit score. But the chances are, you'll be using your own personal credit score on your SBA loan application.
So if you're looking ahead at an SBA loan soon, start beefing up your credit. Of course, the SBA will see your own creditworthiness as a sign of your ability to manage your business' finances as well.
Even though you've met the SBA loan requirements, you may have secured a loan you can't repay. If you find yourself with SBA loan issues, contact us to see how we can advocate for you.
Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure
Millions of Dollars in Treasury Debts Defended Against via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers and Negotiated Repayment Agreements
Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.
Clients personally guaranteed SBA 7(a) loan balance of over $300,000. Clients also pledged their homes as additional collateral. SBA OIC accepted $87,000 with the full lien release against the home.
Our firm successfully assisted a client in closing an SBA Disaster Loan tied to a COVID-19 Economic Injury Disaster Loan (EIDL). The borrower obtained an EIDL loan of $153,800, but due to the prolonged economic impact of the COVID-19 pandemic, the business was unable to recover and ultimately closed.
As part of the business closure review and audit, we worked closely with the SBA to negotiate a resolution. The borrower was required to pay only $1,625 to release the remaining collateral, effectively closing the matter without further financial liability for the owner/officer.
This case highlights the importance of strategic negotiations when dealing with SBA settlements, particularly for businesses that have shut down due to unforeseen economic challenges. If you or your business are struggling with SBA loan debt, we focus on SBA Offer in Compromise (SBA OIC) solutions to help settle outstanding obligations efficiently.
Client’s small business obtained an SBA 7(a) loan for $150,000. He and his wife signed personal guarantees and pledged their home as collateral. The SBA loan went into default, the term or maturity date was accelerated and demand for payment of the entire amount claimed was made. The SBA lender’s note gave it the right to adjust the default interest rate from 7.25% to 18% per annum. The business filed for Chapter 11 bankruptcy but was dismissed after 3 years due to its inability to continue with payments under the plan. Clients wanted to file for Chapter 7 bankruptcy, which would have been a mistake as their home had significant equity to repay the SBA loan balance in full as the Trustee would likely seize and sell the home to repay the secured and unsecured creditors. However, the SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection to the SBA. Clients then received the SBA Official 60-Day Notice and hired the Firm to respond to it and negotiate on their behalf. Clients disputed the SBA’s alleged balance of $148,000, as several payments made to the SBA lender during the Chapter 11 reorganization were not accounted for. To challenge the SBA’s claimed debt balance, the Firm Attorneys initiated expedited discovery to obtain government records. SBA records disclosed the true amount owed was about $97,000. Moreover, because the Clients’ home had significant equity, they were not eligible for an Offer in Compromise or an immediate Release of Lien for Consideration, despite being incorrectly advised by non-attorney consulting companies that they were. Instead, our Firm Attorneys recommended a Workout of $97,000 spread over a lengthy term and a waiver of the applicable interest rate making the monthly payment affordable. After back and forth negotiations, SBA approved the Workout proposal, thereby saving the home from imminent foreclosure and reducing the Clients' liability by nearly $81,000 in incorrect principal balance, accrued interest, and statutory collection fees.
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