Credit scores are one of the main ways a lender will determine your creditworthiness – how likely you are to pay back your loan or how risky it is to lend you money. The SBA doesn’t set a required minimum credit score to get an SBA loan, but having a higher score will usually make it easier to get any kind of financing. SBA-approved lenders can set their own credit score minimums for the loans they manage, so it’s important to understand their requirements before you apply.
In general, you can expect a better chance of having your SBA loan approved if your credit score is in the high 600s. However, some SBA loan programs will determine your creditworthiness based on other factors as well.
7(a) loans
As the most common and popular SBA loan type, the SBA 7(a) loan program can be used for multiple purposes and borrowers can get up to $5 million, depending on their qualifications. The SBA sets maximum interest rate limits for these loans, which are based on a Prime rate plus a percentage – 8.0 percent for fixed-rate loans and 6.5 percent for variable loans. Repayment terms will vary based on what the borrower intends to use the loan for, but can be anywhere from five to 25 years.
To get an SBA 7(a) loan, the lender may have their own credit score requirements, but the SBA will determine your eligibility based on the FICO Small Business Scoring Service (SBSS). This system uses a number of different elements, including your personal credit score, business financials and more, to calculate a number between 0 and 300. Your SBSS score can change over time, just like a personal credit score. The SBA requires a SBSS minimum score of 155 in order to qualify for a loan of up to $350,000.
504/CDC loans
The SBA 504/CDC loan program is another popular loan program meant to help small businesses finance major fixed assets such as commercial real estate, property improvements or large equipment purchases. These loans are managed by both an SBA-approved lender and a Certified Development Company (CDC) and the borrower is required to put up at least 10 percent as a down payment. You can get up to $5.5 million for your projects, although the SBA stipulates that it must create jobs or meet other requirements for economic and community building. The CDC’s portion of the funding (40 percent) will have an interest rate based on five- and 10-year Treasury rates, while the third-party lender will negotiate the rate with the borrower.
While the SBA doesn’t state a specific credit rating to qualify for an SBA 504/CDC loan, you have a better chance of getting the loan if your credit score is 680 or above. Your cash flow will also have a significant impact on whether or not your loan application is approved.
Microloans
For smaller loans of $50,000 or less, SBA microloans are very popular. They can be used for many business purposes, and interest rates usually fall between eight to 13 percent with repayment terms of seven years.
The program is targeted to business owners from historically underserved populations, such as minorities, women and veterans, who may have poor or no credit history and lower incomes. Because of this, the lender may not even consider your credit score when determining your eligibility. They may instead consider your collateral, personal guarantees and cash flow as well as your business plan.
Disaster loans
The SBA created the Economic Injury Disaster Loan (EIDL) program to help small businesses that have suffered significant economic injury in declared disaster areas (think hurricanes, floods, fires or even COVID-19). These loans can be as high as $2 million with interest rates capped at 4 percent, and small business owners can use them for normal business expenses. This includes anything from rent and utilities to payroll and healthcare benefits for employees.
If your business property has suffered physical damage, you can also qualify for an EIDL loan of up to $2 million for property repairs, including inventory, equipment or machinery. These loans have a slightly higher interest rate cap at eight percent but their repayment rates can be as high as 30 years.
Because these loans are meant for businesses that were affected by a disaster, the SBA is pretty generous with them. The minimum credit score to qualify is in the high 500s, which is below average and considered “fair”. It would generally be difficult for a business owner with a fair credit score to get funding from other sources, so these loans can really be a lifeline to small businesses in tough times.
CAPLines
Unlike other SBA programs, the CAPLines program is a line of credit. There are four CAPLines, each with their own purpose: working capital, contract, seasonal and builders. Qualified borrowers can get approved for credit lines as high as $5 million and terms of up to a decade. Interest rates are based on the Prime rate plus 8.0 percent fixed or plus 4.75 percent variable.
The SBA does not dictate a minimum credit score for CAPLines programs, but having a personal credit score of 680 or above can improve your chances.
Export loans
For small businesses looking to expand their business into export territory, the SBA offers Export Express loans. You can get up to $500,000 with repayment terms of up to seven years for a line of credit or 25 years for a term loan. Interest rates are tied to the Prime rate and can range from an additional 4.5 – 6.5 percent depending on how much money you borrow.
There’s also the SBA Export Working Capital loan which allows small business owners to borrow up to $5 million for working capital, production or inventory. Interest rates are determined by the lender and can be negotiated by the borrower. If you use the loans as line of credit, you must repay it after a year.
When determining eligibility for SBA Export loan programs, lenders will look at your business credit score as well as your personal statement, which includes your character and experience, as well as your credit history. There’s no minimum credit score to qualify for an SBA Export loan.
