SBA rules · SOP 50 10 8.1

Can a startup get an SBA 7(a) loan?

Yes, a startup or new business can qualify for an SBA 7(a) loan, provided it satisfies program eligibility, projection-based repayment underwriting, and mandatory equity requirements.

Quoted from SBA SOP 50 10 8.1Every quote checked word for word

In detail

Definition: SBA defines a "Start-Up Business" as a business that has been in operation, meaning generating revenue from intended operations, for 1 year or less, and a "New Business" as one operating for 2 years or less at loan approval.
Equity injection: For Standard 7(a) and 7(a) Small loans, a Start-Up Business requires an equity injection of at least 10 percent of total project costs. For SBA Express loans, requiring an equity injection is left to the business judgment of the lender.
Repayment ability: Because historical performance is unavailable or limited, repayment ability must be established through detailed projections and supporting assumptions, showing a debt service coverage ratio of at least 1.15:1 within 2 years of funding for Standard 7(a) loans or 1.10:1 within 1 year for 7(a) Small loans.
Credit not available elsewhere: A lender's conventional policy that normally does not allow loans to new businesses in operation for 2 years or less is explicitly recognized as an acceptable factor demonstrating an identifiable credit weakness.
Program-specific limitations: Certain specialized 7(a) programs restrict startup participation; for example, Seasonal CAPLines require at least 12 calendar months of operation, while Export Express and EWCP require 12 months unless key personnel or management demonstrate sufficient expertise.
Buying an existing business instead? Change-of-ownership loans of any size follow Appendix 15: 1.25 for an initial acquisition or owner buyout, 1.15 for a business expansion.

The source

What the SOP says

“a business is a Start-Up Business if it has been in operation (i.e., generating revenue from intended operations) for 1 year or less;

SOP 50 10 8.1, Appendix 3: Definitions > SOP (lines 4415-4423)✓ Verified

“SBA considers a business to be a “start-up” for the purpose of determining equity injection requirements if it has been in operation (i.e., generating revenue from intended operations) for 1 year or less. SBA considers an equity injection (Applicant contribution) of at least 10 percent of the total project costs (all costs required to become operational, regardless of the source of funds, except for lines of credit and 504 loans) to be necessary for a Start-Up Business to operate on a sound financial basis.

SOP 50 10 8.1, Chapter 1: Standard 7(a) Loans (Loans greater than $350,000) > Equity requirements (13 CFR § 120.150): (lines 1682-1684)✓ Verified

“For start-ups, new businesses, and other applications based on projections, include detailed projections, including the supporting assumptions that reflect a debt service coverage equal to or greater than 1.15 within 2 years from loan funding or, for construction projects, within 2 years from the end of construction.

SOP 50 10 8.1, Chapter 1: Standard 7(a) Loans (Loans greater than $350,000) > Financial analysis of repayment ability: (lines 1639-1643)✓ Verified

“The SBA Lender’s/Third Party Lender’s policy normally does not allow loans to new businesses (e.g., a business that has been in operation for a period of not more than 2 years) or businesses in the Applicant’s industry;

SOP 50 10 8.1, Chapter 1: Primary Applicant Eligibility Requirements > The SBA Lender must include in its credit memorandum: (lines 621-631)✓ Verified

“Have been in operation for at least 12 calendar months;

SOP 50 10 8.1, Chapter 4: 7(a) CAPLines > Seasonal CAPLines (lines 2030-2034)✓ Verified

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