SBA's rule that a loan is eligible only if the business cannot get some or all of the money on reasonable terms elsewhere. The lender must certify it and explain why in its credit memo.
The test comes from the Small Business Act and 13 CFR 120.101. If the business’s cash flow and collateral, including a third party’s guaranty, would meet the conventional standards of the lender, the project is not eligible for an SBA loan. The lender must find that some or all of the money is not available from the liquidity of owners of 20 percent or more, their spouses and minor children, or the business itself, or from conventional lenders. Owners may keep reasonable funds for medical, education and retirement needs, and the business reasonable funds for capital expenses over 24 months and for working capital.
The lender must name an identifiable gap. Factors SBA accepts include a term longer than lender policy allows, a loan above the lender’s limit for one customer, collateral outside policy, a policy against new businesses (two years or less) or the industry, and other credit factors. A score policy alone is not enough.
A lender may not rely only on the need to sell the guaranteed portion on the secondary market, or on exceeding its legal lending limit. It may not rely at all on its CRA rating or on a better lien position. If the memo does not address the need, SBA can decline the loan or deny the guaranty.
How it shows up in the data here
Not in any public file. The SBA loan file lists loans that were made and not the lender's reasons, so no lender page can show why a loan needed the guaranty. The credit memo behind it is private. Ask the lender which of SBA's listed factors applied to your request.
Go further
- A bank said no: three questions: Who has made SBA loans like yours, from public records. Nothing is saved.
- What to do after a bank says no to a business loan: One bank's no is one lender's answer, and the reasons are yours to ask for. They usually point to a constraint you can name.
- SBA 7(a) loan package checklist: A 7(a) package is the bank's usual file plus SBA's own list. Know which items SBA requires and you can have them ready before the first call.
Related terms
- SBA 7(a) loan: SBA's main business loan program. A lender makes the loan and SBA guarantees part of it: up to 85 percent of $150,000 or less and 75 percent of more, on loans up to $5,000,000.
- SBA guaranty percentage: The share of a 7(a) loan that SBA guarantees to the lender: up to 85 percent of a loan of $150,000 or less, up to 75 percent of a larger loan, and 50 percent on SBA Express.
- SBA Lender Match: An SBA online tool where a business answers a few questions and SBA sends a summary of interested lenders within two business days. It is not a loan request and promises no loan.
- SBA collateral requirements (7(a)): SBA's rules for what a 7(a) lender must take as collateral and how each asset counts, such as improved real estate at 85 percent of value. A request must not be declined only for thin collateral.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.