An Introduction to Small Business Administration Loans

Loans under this program must meet certain criteria. The business gets a loan from its lender with a 7(a) structure, and the lender gets an SBA guaranty on a percentage or portion of the loan. For more information, go to www.sba.gov/financing/sbaloan/7a.htm.

Eligibility Criteria for SBA Loans
To obtain a loan under any of the SBA Loan Programs, the applicant must first be eligible. Unless otherwise specifically stated, most of the SBA Loan Programs use the Basic Section 7(a) eligibility criteria, which are broad and designed to accommodate the most diverse number of small business financing needs. All businesses must meet the following SBA 7(a) Loan Program eligibility criteria to be considered for financing:

• Size;
• Type of business;
• Operation in the U.S. or its possessions;
• Availability of funds from other sources;
• Use of proceeds;
• Repayment.

Size
The maximum size of an eligible business is defined by size standards developed by the SBA. Under the Small Business Act, an eligible small business is defined as one that is "independently owned and operated and not dominant in its field of operation." The Act includes some room for flexibility in the definition, taking into account differences in size from industry to industry. If a potential borrower is close to, but doesn't quite meet size standards, this can be discussed with the local SBA office. Meeting the employment or sales standards developed by the SBA and based on the North American Industry Classification System (NAICS) is also an eligibility requirement. The SBA uses the following criteria to determine if a business qualifies as a small business that is eligible for SBA loan assistance:

• Construction. Average (three years) annual sales or receipts of not more than $12 million to $28.5 million, depending upon the specific business type;
• Manufacturing and Mining. Depending on the industry, approximately not more than 500 employees;
• Retail or Service. Depending on the industry, average (three year) annual sales or receipts of not more than $6 million up to $29 million;
• Wholesale. Not more than 100 employees;
• Special Trade Contractors. A limit of $7 million;
• Agricultural Industries. A limit of $.5 million for most agricultural industries.

For more information about size criteria, go to http://sba.gov/size/indextableofsize.html.

Type of Business
The business must be a for-profit enterprise, and be an eligible type of business. Certain types of businesses and applicants require additional considerations regarding eligibility for SBA loan programs. Moreover, although the majority of businesses will be eligible for financial assistance from the SBA, some types of businesses are completely ineligible.