SBA Loan Credit Score Requirements: Do You Qualify?

When you apply for financing from the U.S. Small Business Administration (SBA), your credit score is one factor that influences your loan approval. The SBA does not state specific credit score minimum requirements, but business mentors recommend entrepreneurs have a credit score in the mid to high 600s. Some loan products, like the SBA microloan program, may have SBA loan credit requirements on the lower end. There are additional eligibility factors both the SBA and lenders enforce before you can qualify for SBA financing.

Minimum SBA credit score requirements by loan type

The SBA offers various financing programs, each with their own rates, terms and intended use. There is no general minimum credit score requirement shared among SBA-approved lenders — each may enforce different minimum credit score requirements, depending on the loan type.

7(a) loans

The SBA 7(a) loan program is considered the SBA’s flagship product for general financing. With amounts ranging up to $5 million, the proceeds can be used for various business expenses, including working capital, inventory, fixed assets and purchasing real estate. Maximum interest rates on a 7(a) loan can be fixed (up to Prime + 8.0%) or variable (up to Prime + 6.5%). The repayment terms can range from five to 25 years and are based on how the funds are used.

Instead of a personal credit score, the SBA uses the FICO Small Business Scoring Service (SBSS) when evaluating 7(a) loan applicants. The system calculates the business owner’s credit bureau data, financials and other factors to produce a number between 0 and 300. The current minimum SBSS score is 155 for loans up to $350,000. SBSS scores are not static and can adjust to current credit and market conditions.

CDC/504 loans

The SBA 504/CDC loan program offers financing of up to $5.5 million and is best used for financing real estate and major fixed assets, such as commercial equipment. The loan is composed of three entities: 50% funding from the lender, 40% from a Certified Development Company (CDC) and 10% from your down payment. Interest rates for the CDC portion are pegged to five- and 10-year Treasury rates. The third-party lender may offer a fixed or variable rate and is negotiated between the lender and business owner.

Having a credit score of 680 or higher can boost the strength of your application. However, your business’s cash flow will likely carry more weight — if you aren’t generating or projecting enough cash flow to repay the loan, your application may be denied.

Microloans

The SBA microloan program targets business owners from underserved markets who may not qualify for a traditional bank loan. These include business owners with little to no credit history, low income, and women and minority entrepreneurs.

The maximum amount on a microloan is lower — up to $50,000 — and can be used for supplies, equipment, fixtures and more. Repayment terms can extend up to eight years for microloans approved in fiscal year 2021, or seven years if approved the following year. The interest rate typically ranges from 8% to 13% and is negotiated between the business owner and the intermediary.

Since microloans also target applicants with little to no credit, the intermediary may or may not evaluate credit scoring when evaluating your application. For new entrepreneurs, lenders will likely place more weight on your business plan and require cash flow projections for a minimum of the next 12 months. Collateral and personal guarantees will likely apply, too.

Disaster loans

The SBA Economic Injury Disaster Loan (EIDL) offers financing to businesses within declared disaster areas that have suffered significant economic injury. Outside the coronavirus pandemic, declared disasters may include natural disasters, such as hurricanes or wildfires, or civil unrest. The maximum loan amount is $2 million and you can use it for working capital and normal expenses, including rent, utilities and health care benefits. The SBA caps the disaster loan interest rate at 4%.

Business owners that suffer physical damages while in a declared disaster area may also qualify for physical damage loans of up to $2 million. You can use the loan to repair or replace damaged property, including machinery, equipment and inventory.  Interest rates cap at 8% and can have repayment terms up to 30 years.

The minimum credit score for SBA disaster loan programs is in the high 500s.

CAPLines

The SBA offers four government lines of credit called CAPLines — working capital, contract, seasonal and builders — each used for specific purposes. For example, the builders line of credit offers capital to construction companies, and the seasonal line of credit helps business owners meet rising demand during peak seasons.

CAPLine amounts can extend up to $5 million with terms up to 10 years. The interest rate can be fixed (up to Prime + 8.0%) or variable (up to Prime + 4.75%). There is no hard credit score minimum for CAPLines, but a score of at least 680 can increase your likelihood of approval.

Export loans

The SBA Export Express loan program offers fast funding for exporters looking to start or expand their enterprise. The maximum loan amount is $500,000. Interest rates can range from Prime + 4.5% to Prime + 6.5% depending on the loan amount with terms up to seven years if used as a line of credit, or up to 25 years if used as a term loan.

The SBA Export Working Capital loan offers financing of up to $5 million to export companies, which can be used for working capital, inventory, the production of export goods or services and more. You’ll work with the lender to determine interest rates. The loan must be repaid after one year if used as a line of credit.

Lenders do not rely solely on credit scores when reviewing applications for export loans. They might use business credit scoring models that look at your character, experience and credit history.

Prime rate is 8.50% as of August 21, 2023.

Additional SBA loan requirements

SBA loan credit score requirements are only one eligibility factor lenders look at. Depending on the lender and loan, additional eligibility criteria can apply. For SBA financing, applicants must operate companies that meet the SBA’s business definition:

• Be an officially registered and legal for-profit business
• Be physically located and operating within the U.S. or U.S. territories
• Have your own equity (time and/or money) invested in the business

Businesses must also meet the SBA’s small business size standards based on the enterprise’s average annual receipts or average number of employees. The size standards vary by industry.

Lenders may enforce additional requirements, including minimum time in business, annual revenue and cash-flow history. Lenders use this information to determine your ability to repay the loan.

Some lenders require that you put down collateral — one of the disadvantages of SBA financing. You may need to pledge assets, such as personal real estate or commercial equipment, as collateral to reduce the lender’s risk. If the loan defaults, the lender can seize the asset to recoup some of their loss. Also, expect to make a 10% to 20% down payment for some SBA loans.

How to improve your credit score

If you don’t meet the minimum credit score for SBA loan programs because your credit score is too low or your credit history is insufficient, don’t worry. There are a few ways you can build credit and give your score a boost.

• Make on-time payments. Paying your balance on time is a significant part of your credit score. Setting up automatic payments on your credit accounts, personal or student loans and utility bills can help ensure you don’t miss a deadline (while also avoiding late fees). Over time, your positive payment history can improve your credit score.
• Lower your outstanding debt amount. While some debt may be necessary — paying for higher education or starting a business, for instance — owing too much can negatively affect your credit score. Chipping away at your debt while lowering your credit utilization will reduce the total amount you owe. If you have high balances on multiple credit cards, consolidating them under one debt consolidation loan can make repayment more convenient.
• Dispute errors on credit reports. If you discover an error on your credit report — an unknown lien, for example — you can dispute it. Most investigations conclude within 30 days and you may see your credit score rise after removing the error.
• Keep old accounts open. Closing a credit card account may lower your total credit limit and increase your credit utilization ratio, which can harm your credit score. Therefore, it benefits you to keep old credit card accounts open. If you feel that a certain card has unfavorable terms, converting your account to a better card with the same issuer can maintain your account’s credit age.