SBA Mortgage Automated Disqualifications

It’s well-known that whereas SBA loans provide low rates of interest and lengthy reimbursement phrases, they require a time-consuming and paperwork-heavy utility course of.

Earlier than you dive into your utility, it is best to familiarize your self with this record of things that may mechanically disqualify you from an SBA mortgage.

We’ll begin with a short questionnaire to raised perceive the distinctive wants of your enterprise.

As soon as we uncover your personalised matches, our staff will seek the advice of you on the method transferring ahead.

1. What you are promoting is partially owned by a non-U.S. citizen.

Beforehand, companies partially owned by non-U.S. residents had been eligible for SBA loans — so long as no less than 51% of the enterprise was owned by a U.S. citizen or everlasting resident. However, within the first half of 2025, the Trump Administration made numerous modifications to SBA mortgage tips, together with requiring a enterprise to be 100% owned by U.S. residents, nationals or lawful everlasting residents to qualify.

Moreover, for those who’re a U.S. citizen however your enterprise is situated in another country, then it doesn’t make sense so that you can transfer ahead with an SBA mortgage utility. The SBA requires that your enterprise be inside the US to be eligible for certainly one of its mortgage packages.

2. You utilize too many individuals or generate an excessive amount of income.

This automated disqualification is without doubt one of the extra complicated ones to distill. The SBA has strict tips for what classifies a enterprise as “small.” However the actual necessities differ by business and depend upon both the full variety of workers or the full annual income. The SBA will get extremely granular with industries, assigning a numbered code to every and publishing a chart of small enterprise dimension requirements by business. Use the chart to find out whether or not your enterprise is mechanically ineligible primarily based on its dimension.

3. You use a nonprofit, MLM or different ineligible enterprise.

Nonprofit companies high the SBA’s record of ineligible enterprise sorts. The whole record consists of greater than a dozen completely different enterprise sorts which might be mechanically disqualified from SBA loans. Some are these you may anticipate: companies participating in unlawful actions, pyramid schemes, firms working within the pornography business. However a number of extra enterprise sorts that make this record could shock you. See the dropdown under to find out if your enterprise falls underneath one of many ineligible classes.

Companies ineligible for an SBA mortgage

Pyramid or multilevel advertising (MLM) gross sales companies.
Non-public golf equipment that prohibit membership for any cause aside from capability.
Companies primarily engaged in political or lobbying actions.
Companies that obtained greater than a 3rd of their annual gross income for the prior 12 months from authorized playing actions.
Speculative companies (e.g., corresponding to oil wildcatting, buying and holding an merchandise till the market worth will increase or participating in a dangerous enterprise for the possibility of an unusually massive revenue).
Authorities-owned entities (aside from companies owned or managed by a Native American tribe).
Monetary companies primarily engaged in lending, corresponding to banks, finance firms and factoring firms.
Mortgage packagers, together with lender service suppliers, and different companies incomes greater than a 3rd of their gross annual income from packaging SBA loans.
Companies situated throughout the Coastal Barrier Useful resource System.
Companies with an affiliate who’s at the moment incarcerated, serving a sentence of imprisonment as a consequence of responsible verdict or is underneath indictment for a felony or any crime involving or regarding monetary misconduct or a false assertion.
Companies that current reside performances of a prurient sexual nature or that derive greater than de minimis gross income by the sale of merchandise, providers or the presentation of any depictions of a prurient sexual nature.
Passive companies owned by builders and landlords that don’t actively use or occupy the belongings acquired or improved with the mortgage proceeds. (Exceptions could apply in restricted circumstances.)

4. You could have an excessive amount of money available.

The precise language the SBA makes use of in its record of eligibility necessities is that you have to “not be able to obtain the desired credit on reasonable terms from non-federal, non-state and non-local government sources.” That language is a bit obscure and complicated, although.

Maybe a clearer manner to consider it’s that you just shouldn’t be capable of fairly get the credit score elsewhere. Your private liquid belongings are one key piece of this requirement. If the lender or the SBA determines out of your private monetary assertion included in your utility that you’ve got the means to self-fund, you then’ll be denied an SBA mortgage. So, you probably have a spare $500,000 hanging out in an account someplace, and also you’re angling for a $100,000 SBA mortgage, you’re more likely to be denied.

5. You haven’t been in enterprise lengthy sufficient.

Usually, lenders look to 3 foremost standards to find out your “creditworthiness”: time in enterprise, credit score rating and annual income. As a result of many alternative lenders — every with their very own qualification standards — challenge SBA loans, it’s onerous to definitively state the minimal necessities wanted to qualify for an SBA mortgage.

SBA funding advisors at Fundera by NerdWallet, nevertheless, have shared the next normal qualification minimums:

Private credit score rating: 690
Annual income: greater than $167,000
Time in enterprise: greater than two years (want to produce two years of enterprise tax returns)

6. You intend to make use of the funds to repay enterprise taxes.

Much like the record of ineligible enterprise sorts, the SBA has a transparent record of functions for which you can not use the mortgage proceeds. Verify the record within the dropdown under to see in case your deliberate use for the mortgage funds mechanically disqualifies you.

Ineligible use of proceeds

Paying off private debt.
Paying off private or enterprise taxes.
Funds are being put to make use of outdoors of the U.S.
Funding a enterprise aside from the one you are making use of underneath.

7. You’re within the midst of divorce proceedings.

It might appear pretty apparent that you just’d be disqualified from a government-backed mortgage if your enterprise is at the moment engaged in litigation. What could also be much less apparent is that even litigation involving private issues — for instance, divorce — can put an SBA mortgage out of attain for you. So for those who’re actively in courtroom pursuing any private or enterprise matter, it’s greatest to attend to use for an SBA mortgage till the litigation is closed.

8. You’ve beforehand defaulted on a government-backed mortgage.

When you’ve ever taken out a authorities mortgage previously and didn’t repay it, partly or in full, you then gained’t be permitted for an SBA mortgage.

9. You’ve filed for chapter thrice.

Necessities round bankruptcies differ by lender — some will contemplate your utility for those who’ve filed as soon as, some for those who’ve filed as much as two occasions, whereas others gained’t contemplate a borrower with any bankruptcies of their historical past. However two bankruptcies is the max; three or extra mechanically disqualify you from an SBA mortgage.

What for those who’re mechanically disqualified from an SBA mortgage?

When you tick the field on any of those automated disqualifications, listed here are some subsequent steps to take to get the funding your small enterprise wants:

If your enterprise kind is ineligible for an SBA mortgage, contemplate different lending, which may open up an extended record of nonbank lenders and mortgage sorts with much less strict necessities.

When you’ve reached the tip of this record and none of those automated disqualifications apply to you and your small enterprise, then forge forward with confidence in making use of for an SBA mortgage. Use our library of SBA mortgage sources to get ready: