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Why use SBA
As compared to conventional bank loans,
SBA loans offer:
• Lower down payment requirements
• Longer repayment terms
• Easier qualifying criteria

SBA Loan Request
Below are five criteria used to evaluate an
SBA loan:

Business management experience
Business cash flow
Equity contribution
Credit history

Business Management
SBA lenders look for one or more of the following business
management experience:

Track record of successful ownership and/or management of a
business in the same or similar industry.


Education & training, or strong franchisor support.


If the primary owners don’t have the experience, they can offer
another person who has those attributes as a personal guarantor
on the loan.


When buying a successful business, the SBA lender
likes the buyer to negotiate some seller
second-lien financing.

Business Cash Flow
The lender is primarily concerned with:
• Business’ cash flow
• The last three years historical
business tax returns
• Financial statements
Annual business cash flow is calculated by:
• Dividing the proposed annual loan payments for the new company to
get a debt coverage ratio.
• Underwriters make adjustments to remove non cash expenses
(depreciation, and nonrecurring expenses, ie. one-time legal fees)
The cash flow benchmark for an SBA lender is a debt coverage ratio of
1.25X or better. The .25 portion of that ratio represents the cash flow
cushion the SBA lender likes to see in excess of the loan payment

Owners’ Equity
An SBA lender cannot lend 100% of the project cost. The small
business borrower must have their own “skin in the game.”
Required equity will be at least 10% (or as much as 30%-40%)
of the total project cost.
Qualifying equity may arise from any of the following
• Cash down payment from the buyer/borrower.
• Buyer’s/borrower’s personal assets pledged as
additional collateral for the loan.
• Seller second-lien financing with payments
on standby.

Credit History
For a lender, some of the best evidence for a loan applicant’s
to repay their loan is how they have paid their creditors in the
This information will show up in a credit investigation by the
Lender which includes the following:

Personal credit report – Equifax, Transunion, Experian
Business credit report – Dunn & Bradstreet
Direct calls to prior lenders
Accounts payable agings

Because the U.S. Small Business Administration offers a
government-backed loan program, SBA loans do not need
to be fully secured with collateral.
• The more collateral offered for the loan, the higher the
likelihood of loan approval.
• If the loan is under secured, SBA requires the lender to
take other assets for collateral, if they are owned and
unencumbered by the small business or its principals.
Homestead and retirement assets are exempt
from this requirement.

The Final Analysis
Every business loan application ends up with a summary
of strengths and weaknesses in the loan application based
upon the five foregoing criteria.
To gain loan approval, the strengths must outweigh the
For a weakness exhibited with one
of the criteria, there must be a
compensating strength displayed
in one of the other criteria.

SBA Loan Terms
• Loans primarily secured by real estate will have a 25
year repayment amortization and maturity.
• Loans not primarily secured by real estate will have a 10
year repayment amortization and maturity.
• The maximum interest rate allowed for most SBA loans
is the Wall Street Journal Prime Rate + 2.75% (currently
6%). The interest rate is adjustable quarterly
throughout the life of the loan with changes in the Prime
• Real estate loans have prepayment penalties for full
payoff in the first 3 years.
• Non real estate loans have no prepayment penalty.
• Loan amounts available from $50,000 to $5 million.

Thank You!
Thank you for attending this event! To see educational
articles about SBA financing, please visit my blog at
Use me any time as a resource for information and
assistance with small business financing using the SBA
loan program.
Bruce Hurta
Business Lending Manager
Members Choice Credit Union SBA Lending
14960 Park Row Blvd.
Houston, TX 77084
281-754-1112 office
281-384-2595 cell

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