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Guidelines for Small Business Administration Loans

Applications for Small Business Administration (SBA) loans are judged not only by the credit worthiness of the borrower, but also according to certain eligibility requirements.

Credit Worthiness

Those who are seeking SBA loans are judged like those who are making conventional business loans. That is, the lending institution needs to understand the business and understand what the borrower wants to do. At the very least, loan officers need to have the company’s business plan, the borrower’s financial statement, and resumes and other biographical material about the borrower and other key figures in the company. If for some reason the borrower is turned down by the SBA, it may be necessary to change the business plan and resubmit.

What Is a Small Business?

The rules that determine whether a business is "small" depend on the kind of business. A wholesale business, for example, cannot have more than 100 employees, and a manufacturing business cannot have more than 500 employees. (However, under certain circumstances, a manufacturing facility may have as many as 1,500 employees.) The three year average of sales for retail and service businesses ranges from $3.5 million to $13.55 million per year, depending on the business. Construction businesses are allowed sales of no more than $7.0 million per year. (The SBA sometimes makes exceptions, especially if the business is located in an area of high unemployment.)

When a Small Business Cannot Get an SBA Loan

A borrower may not receive a loan guaranteed by the SBA if the business can get a loan on reasonable terms from a bank or savings and loan or by raising money by selling surplus assets. The SBA will not approve a loan if the owners or chief stockholders have the personal assets necessary to invest in the business. Additionally, the SBA will not approve the loan if it is possible for the company to raise money by selling ownership in the company either through a private offering or through the public sale of stock. Finally, the SBA will not approve a loan if the company can get money from some other government agencies that provide money specifically for the potential borrower’s type of business.