Reviews
Part of SBA loans: 7(a) guarantee and selected fee tiers
SBA loans requirements: programs, forms and eligibility
SBA loans requirements start with the right SBA program, a size test and the forms a lender collects. Here is what a 7(a), 504 or microloan file must satisfy.
What to take away
- SBA loans requirements come from two layersthe program rules and each lender's own credit policy, and the lender's layer can be the stricter one.
- Three programs cover most applicants7(a) for working capital, equipment and real estate, 504 for owner-occupied property, and microloans placed by non-profit intermediaries.
- The shared requirementsa for-profit business operating in the United States, small for its primary NAICS code, owned by U.S. citizens or lawful permanent residents, with no credit available elsewhere and a repayment case the lender can document.
- Size standards are industry-specific, measured in average annual receipts or employee count, and unrelated to the amount you ask for.
- The upfront guarantee fee applies to the guaranteed portion, not the whole loan, and moves with loan size.
- The paperwork runs on SBA Form 413 for owners of 20% or more, Form 1919 for a 7(a) request and Form 1244 for a 504 file.
- A decline has two causesa failed repayment case or a failed security case. Ask the lender which, in writing.
The guarantee sits behind the lender
A participating lender advances its own money on its own paper. It holds the customer relationship. The SBA absorbs an agreed share of that lender's loss if the borrower defaults.
So the lender still underwrites as if the whole sum were at risk, because part of it is. Collateral and personal guarantees stay on the table.
Who Actually Lends the Money
- Borrower applies to participating lender
- Lender lends its own money
- SBA guarantees a portion of exposure
- Lender retains real exposure
- Lender underwrites and sets own policy
Which program you are applying under
What it funds
- 7(a)
- Working capital, equipment, real estate, refinancing
- 504
- Owner-occupied real estate, long-life equipment
- Microloan
- Working capital, small equipment
Who lends
- 7(a)
- Bank or credit union
- 504
- Bank plus a certified development company
- Microloan
- Non-profit intermediary
Ceiling
- 7(a)
- $5 million
- 504
- About $5 million to $5.5 million
- Microloan
- $50,000
The 504 row surprises owners most. The property has to be owner-occupied, the SBA-backed portion runs through a certified development company working with a bank, and the SBA sets occupancy tests, a minimum equity injection, and a job-creation or community-development test the project has to pass. The SBA's 504 loan page spells out each one.
Microloans come from intermediaries rather than banks. Startups qualify, and the document set is smaller in volume rather than in kind, as the SBA microloan page sets out.
Choosing between them is a question of use, not preference. SBA loans works through where each program fits and how the guarantee shapes the terms you are offered.
The eligibility checklist before you apply
- The business is for-profit and operates in the United States or its territories.
- It is small under the SBA size standard for its primary NAICS code.
- The business cannot obtain credit elsewhere on reasonable terms. That credit-elsewhere test is statutory, and the lender has to document it.
- Owners are U.S. citizens or lawful permanent residents, current on federal debt and clear of recent financial-crime convictions.
- The lender can document repayment from business cash flow.
- Any owner of 20% or more signs a personal guarantee, and the lender looks for collateral where it is available.
- The industry is not on the SBA's ineligible list, which covers lending, gambling and a handful of other activities.
The SBA states these conditions on its 7(a) program page and in its business loan rules at 13 CFR Part 120, which also names the ineligible business types.
Lenders add their own credit policy on top of the program rules. Two banks can read one file differently and both be correct, so ask each for its extra conditions before you assemble anything.
Size standards come from your NAICS code
Your primary code is the one accounting for the largest share of receipts. Every code carries a size standard, and that standard decides whether you count as small.
Most standards are measured in average annual receipts across recent completed fiscal years. Others use employee count, common in manufacturing.
For the codes small borrowers ask about most, receipts thresholds commonly sit between about $9 million and $45 million a year, and employee thresholds often run from 500 to 1,500. Treat those as typical ranges and check the SBA table for your own code.
Industry-level comparisons mislead more often than people expect, and loans by industry comparison covers where they go wrong.
Watch the affiliation rule. If you control another company, or another company controls you, the SBA can combine receipts for the test.
Guarantee fees in percentages and dollars
The upfront fee is charged on the guaranteed portion. The SBA guarantees 85% of loans at or below $150,000, and 75% above that level.
| Loan amount | Guaranteed portion | Upfront fee, typical range |
|---|---|---|
| $50,000 | 85% | Often waived recently, otherwise about 2% |
| $150,000 | 85% | About 2% |
| $500,000 | 75% | About 3% |
| $1,000,000 | 75% | About 3.5% |
| $2,500,000 | 75% | About 3.75%, the usual cap |
The SBA has waived or reduced these fees for smaller loans in several recent budget years. Confirm the current schedule before you build it into a budget.
Example: fees on a $500,000 7(a) loan
At 75% guaranteed, the guaranteed portion is $375,000. An upfront fee of 3% costs $11,250.
A servicing fee of about 0.5% of the guaranteed portion adds roughly $1,875 a year, which lenders commonly pass through. Over five years the fee load reaches about $20,625, close to 4% of the amount borrowed, before interest.
Put that total beside a conventional offer with term loans comparison, which normalises facilities so the figures mean the same thing.
The documents a lender collects
- Business tax returns for two to three years, plus personal returns for each owner.
- Year-to-date profit and loss statement and balance sheet.
- A debt schedule listing every obligation and its monthly payment.
- Ownership papersformation certificate, operating agreement, any buy-sell agreement.
- Lease or purchase contract, plus collateral detail such as equipment lists and vehicle titles.
- SBA Form 413, Personal Financial Statement, for owners of 20% or more.
- SBA Form 1919, Borrower Information Form, for a 7(a) request. A 504 file runs on SBA Form 1244.
The same facts must satisfy credit policy and be recorded so the guarantee attaches. That is why collection runs in stages across several weeks.
When the application is declined
A failed repayment case means the lender cannot see the debt serviced from cash flow. The fix is arithmetic: a smaller ask, a longer amortisation, or a co-borrower with documented income.
A failed security case means collateral, guarantees or paperwork fell short. The fix is structural: different collateral, a different structure, or a lender whose conditions fit your file.
Ask which one it was, in writing. Loans by credit profile review sets out what lenders weigh beyond a score when they read a file.
