SBA loans in plain English

Why it matters to youIf you own three companies, SBA may count all their employees and revenue together. People with a portfolio of small businesses get caught by this constantly, and it's better to find out before you've paid for an appraisal.

Why it matters to youIt's the word that decides who has to sign, who gets background-checked, and whose personal finances end up in the file. If you have a silent partner at 25%, they are not silent to SBA.

Why it matters to youThis kills more applications than anything else people never see coming. A student loan you thought was settled in 2011 can still be sitting there. Ask a lender to run it before you spend money on anything else — it costs them nothing and it's the cheapest way to find out.

Why it matters to youThis sounds like a hurdle and almost never is — the lender writes a paragraph and moves on. Worth knowing only so you don't panic when you see the phrase in your file.

Why it matters to youThe rules changed in 2024 and most of what's online is out of date. Probation and parole were removed from the disqualifying list; what still disqualifies is current incarceration or being under indictment for a felony or a crime involving financial misconduct. Separately: you disclose on the form even if the record was sealed or expunged. Those are two different obligations and people conflate them.

Why it matters to youVery common when buying a business with its building. Both entities are on the loan and both guarantee it. If your attorney suggests holding property in a separate LLC, this is the SBA-compatible way to do it.

Why it matters to youThis is why two banks give opposite answers on the same file, and why 'I was declined for an SBA loan' is almost never true. You were declined by one bank. The SBA rules didn't change between the phone calls.

Why it matters to youCheck this before you sign a franchise agreement, not after. Getting a brand added takes time you won't have once you're under contract, and franchisors don't always mention that they've dropped off.

Why it matters to youAlmost nobody reading this is near the ceiling. It becomes real only if you're buying something substantial or you already own related businesses that get combined under the affiliation rules.

Why it matters to youAn absolute bar, and free to check yourself in about two minutes. Do it before you apply rather than finding out at underwriting.

Why it matters to youIt has to be genuinely yours — seasoned in your account, a documented gift, or a retirement rollover. Borrowed money doesn't count, and they will ask for two months of statements. Move money early so it's sitting still when they look.

Why it matters to youThe single most useful structure in small acquisitions. A note on full standby can count toward part of your required injection, which means materially less cash out of your pocket at closing. Ask about it early, because the seller has to agree and it changes the negotiation.

Why it matters to youThe guaranty protects the bank, not you. You still owe the whole balance. The reason it matters to you is that the guaranty fee is calculated on this portion, not on the full loan.

Why it matters to youThe classic mistake is moving your down payment between accounts a week before underwriting. Every transfer generates a question and a paper trail you have to explain. Park it and leave it.

Why it matters to youTwo things at once: it fills a funding gap, and it keeps the seller financially interested in your success. Buyers often read it as the seller doing them a favour. Lenders read it as the seller believing the business will keep performing, which is worth more than the money.

Why it matters to youYour seller may not have thought about what this means. In a bad outcome the bank is made whole first and the seller may get nothing. Sellers who understand this early negotiate better; sellers who discover it at closing sometimes walk.

Why it matters to youWhat it can't do matters more: you can't take a distribution, can't buy out a partner's personal debt, can't fund passive real estate investment. Everything gets disbursed against documentation, so plan for money arriving in tranches rather than as a lump sum.

Why it matters to youAsk for more than you think you need. Buyers who close with nothing spare are the ones taking a cash advance eight months later, and by then the terms are brutal. It is far easier to build a cushion into the original loan than to raise money afterwards.

Why it matters to youNot a closing. It's an approval with homework attached, and deals die at this stage regularly — usually on appraisal, environmental, or a landlord who won't sign. Celebrate briefly, then work the condition list.

Why it matters to you'It's in E-Tran' means your file has genuinely been submitted and has a number. Until then — whatever you've been told about being 'in process' — it has not. It's the one status question worth asking directly.

Why it matters to youSigned under penalty of federal law. Getting something wrong here is a materially different problem from getting something wrong on a bank's internal form. Read it yourself rather than letting a packager fill it in and hand it to you for signature.

Why it matters to youYou never fill this in, but it exists — which means somebody at the bank has written down in plain language why your deal qualifies. Worth knowing when a lender claims SBA won't allow something.

Why it matters to youAdds weeks and sometimes months. Sometimes unavoidable — certain deal types can't be delegated — but if a non-PLP lender is competing with a PLP lender on the same deal, timing may matter more than a quarter point of rate.

Why it matters to youThis is the actual contract of what you're agreeing to. Read it fully. Conditions like carrying life insurance, maintaining a minimum coverage ratio, or getting lender consent before taking a distribution live here, and people are genuinely surprised by them years later.

Why it matters to youPractically, this is weeks of your life. A PLP lender can close substantially faster than one waiting on SBA. Ask on the first call — it's a fair question and any real lender answers it immediately.

Why it matters to youWhen a banker tells you 'the SOP won't allow that,' they're right about half the time. The other half it's the bank's own internal policy wearing SBA's clothes. Ask which section — a lender who can cite it is telling you the truth, and one who can't may have room to move.

Why it matters to youYour BDO is not your underwriter and cannot approve anything. A good one is genuinely valuable — they know what their credit committee will accept and will tell you early if it won't fly. A bad one keeps you optimistic for two months. Ask directly how many deals like yours they closed last year.

Why it matters to youOnly relevant for 504. In a 504 you're dealing with two lenders and two closings, which is more work but gets you a long fixed rate on real estate — something 7(a) generally can't match.

Why it matters to youIf someone helped you and isn't on this form, something is wrong. It's your protection against undisclosed fees buried in your closing costs, and it's the fastest way to check whether a 'consultant' is operating legitimately.

Why it matters to youLegitimate ones exist and can save real time on a complicated file. Their fee has to be disclosed on Form 159 and is capped. Be wary of anyone charging a large upfront fee before a lender has shown interest — that's the standard shape of the scam.

Why it matters to youA low appraisal is one of the most common ways a deal falls apart after approval. If the appraisal comes in under the purchase price, someone has to cover the gap — you, the seller, or a renegotiation. Know in advance which it will be.

Why it matters to youA shortfall doesn't sink the deal. SBA lending is cash-flow lending, not asset lending — that's the entire point of the guaranty. What it usually means in practice is a lien on any real estate you personally own.

Why it matters to youA surprisingly frequent deal-killer. Some landlords simply refuse, and if you're buying a business tied to a location, no waiver can mean no loan. Raise it with the landlord early rather than three days before closing.

Why it matters to youBudget for it and apply early. Underwriting a policy takes weeks and a health issue can delay closing. This is a routine cause of last-minute delays that nobody warned the borrower about.

Why it matters to youThis is the part people sign without reading. Your house isn't automatically collateral, but if you have meaningful equity in it the lender will usually take a lien. Understand precisely what's pledged before you sign, and if you're married, understand what your spouse is signing too.

Why it matters to youThe largest single fee in the deal and the one every online calculator ignores. On a $700,000 loan it's several thousand dollars. You can usually finance it, but then you pay interest on it for the whole term — worth doing the arithmetic both ways.

Why it matters to youQuoted as a 'factor rate' rather than an interest rate, which obscures the real cost. A factor of 1.38 repaid over eight months isn't 38% a year — it's often two or three times that once you account for repaying while the balance shrinks. If you have one, work out the true annual figure before you take another.

Why it matters to youMatters if you might sell the business or refinance. On a ten-year loan it generally doesn't apply at all — which is one genuine advantage of the shorter term that nobody mentions when they're selling you a twenty-five-year amortisation.

Why it matters to youYour rate is prime plus a markup, and prime moves. Most 7(a) loans reset quarterly, so a payment you can just afford today can become one you can't. Run your numbers two points higher before you sign.

Why it matters to youThis is the negotiable part, and most borrowers don't try. A quarter point on a $700,000 ten-year loan is real money. Knowing what other borrowers actually got is the whole reason to look at lender data before you apply.

Why it matters to youWhere acquisition deals live or die. A seller will present twelve add-backs; an underwriter may accept seven. Ask for documentation on every one before you agree a price, because the ones you can't prove will come straight off your cash flow.

Why it matters to youBuyers almost always want an asset sale: you leave the liabilities behind and get a fresh tax basis. Sellers usually prefer a stock sale for tax reasons. This is a real negotiation with real money in it, and it should be settled in the letter of intent rather than discovered at closing.

Why it matters to youThe lender orders it and you pay for it, and it's genuinely useful — it's the only opinion in the room that isn't from someone with a stake in the deal closing. If it comes in well below the asking price, that's information, not an obstacle.

Why it matters to youTriggers its own rulebook — the 10% injection requirement, business valuation thresholds, and specific rules about partial buyouts. Deals that would be routine as an expansion get much more complicated as a change of ownership.

Why it matters to youThe single number that decides whether the deal gets financed. Most lenders want 1.15 or better after paying you a living wage. Below 1.0 the business can't cover its own loan and you'd be funding the difference personally, every month.

Why it matters to youIn most service businesses this is nearly the whole price, and it's worth nothing in a liquidation. That's why collateral shortfalls are normal in acquisitions and why the personal guarantee carries so much weight.

Why it matters to youWeak LOIs cause months of pain. Nail down the structure, what happens if the appraisal comes in low, how long you have exclusivity, and what the seller does during the transition. Vagueness here becomes an argument later, usually at the worst moment.

Why it matters to youWithout it you may be buying a customer list from someone free to call every name on it next month. Lenders often require one, and if yours doesn't, get one anyway.

Why it matters to youThe number small businesses are priced on, and the number sellers inflate. Every add-back is an argument. Your lender will strip out the ones that aren't defensible, and the price you agreed may stop working when they do.

Why it matters to youLenders like to see one. So should you. In relationship-driven businesses a seller who leaves the day after closing can take a third of the revenue with them, and the loan doesn't care why the customers left.

Why it matters to youDoesn't mean the debt is gone. It means the accounting recognises the loss. The personal guarantee survives it, which is why what happens next matters more than the charge-off itself.

Why it matters to youDefault isn't the end of anything. It's the start of a process with several exits, most of which are better than the one you'll imagine at 3am. Talk to your lender before you miss the payment rather than after — options narrow considerably once you've gone quiet.

Why it matters to youFrequently available and frequently not offered unless you ask. Lenders would generally rather defer than liquidate, because liquidation is expensive for them too. Asking early, with a plan, works far better than asking late in a panic.

Why it matters to youThis is what the personal guarantee is actually for. It's also what an offer in compromise settles. Understanding that the deficiency is negotiable is the single most useful thing to know if a business has failed.

Why it matters to youThe point at which you stop dealing with your bank and start dealing with the government. Different people, different rules, different timelines — and the beginning of the process that leads to either a settlement or referral to Treasury.

Why it matters to youThese exist and people do get them. Do not accept the idea that the balance is simply owed forever. It requires full financial disclosure and it's not quick, but it's a genuine path and one that servicers rarely volunteer.

Why it matters to youThe end of the road, and the reason to engage with a settlement earlier rather than later. It also puts you into CAIVRS, which affects your ability to get any federal credit — including a mortgage — for years afterwards.

Why it matters to youThe realistic best outcome when a business is struggling but viable. It requires you to be honest with the lender early and to bring real numbers. Servicers deal with people who avoid them all day; showing up with a plan puts you in a different category.