What are the requirements for an SBA loan?

“13 CFR § 120.100(a) The Applicant must be an Operating Business (except for Eligible Passive Companies (EPCs)).

“13 CFR § 120.100(b) All Applicants must be organized for profit. Non-profit businesses are not eligible for SBA business loan assistance.

“SBA financing is limited to business Applicants with 100% direct and/or indirect owners and SBA-required guarantors, all of whom must be U.S. Citizens or U.S. Nationals who have their Principal Residence in the United States, its territories, or possessions.

“The maximum tangible net worth may not exceed $20 million; and

“The average net income after Federal income taxes (excluding carry-over losses) for the 2 full fiscal years prior to application may not exceed $6.5 million.

“The SBA Lender must certify and indicate that the Applicant does not have the ability to obtain some or all of the requested loan funds on reasonable terms from non-Federal, non-State, or non-local government sources, including from the SBA Lender or Third Party Lender, without SBA assistance.

“The cash flow of the Applicant is the primary source of repayment, not any expected recovery from the liquidation of collateral. Thus, 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 repayment.

“The Applicant’s debt service coverage ratio (DSC) must be equal to or greater than 1.15 on a historical and/or projected cash flow basis and 1:1 on a global basis.

“The DSC ratio must be equal to or greater than 1.15:1.

“All 7(a) loans made to a Start-Up Business require a 10% equity injection based on the project cost; however, loans approved more than 90 days apart from each other are considered to be separate projects.

“All Borrowers must contribute at least 10%, which may be borrowed as long as it is subordinate to the Third Party Loan and the 504 debenture;

“New businesses must contribute at least 15%.

“Must contribute at least 15%, in which case the Debenture will finance no more than 35% of the Project and at least 50% of the Project financing will be from banks or other financial institutions, state or local government, or foundations or other non-profit institutions.

“Must contribute at least 20%, if the Project involves a new business 13 CFR § 120.910.

“A loan request must not be declined solely because collateral is inadequate. SBA recognizes that Applicants may demonstrate repayment ability even when they lack collateral sufficient to repay the loan in full upon default. However, the SBA guaranty is not a substitute for available collateral.

“SBA usually takes a second lien position on Project Property but may have a shared lien (pari passu) with the Third Party Lender. SBA’s second lien position will generally be considered adequate.