If you’ve previously qualified for a Small Business Administration (SBA) loan, your business is most likely in good shape, having benefited from the funds. As your company grows, there will probably be additional expenses to help further fuel its expansion. With SBA loans offering such great benefits, you might want to apply again – but can you apply for an SBA loan twice? Below, learn some more information about how you may be able to secure multiple SBA loans for your business.
Can you apply for an SBA loan twice?
In short, generally, yes. If you continue to meet the minimum requirements for your current SBA loan, lenders typically should have no problem approving you for another. Your business will need to be profitable with a good credit score. The amount of funding you ask for also likely needs to be within the loan program’s borrowing limits.
Additionally, when applying for a second SBA loan, your first must be in good standing. Your first loan application went through because the lender judged that you could reliably repay the loan. If that proved to be untrue, they’d likely hesitate to give you more funding.
Example of having multiple SBA loans
You can have multiple SBA loans with funding totals up to each program’s borrowing limits. For example, SBA 7(a) loans from a bank in the SmartBiz® network have a limit of $350,000. If you borrow $150,000 with an SBA 7(a) loan, you can typically still borrow up to another $200,000. Additionally, you can generally receive $350,000 from an SBA 7(a) loan and still get an additional $100,000 from a non-SBA loan.
Pros and cons of having multiple SBA loans
Multiple SBA loans may be beneficial for your business, but since loans are debts, there’s generally some risk involved. Before committing to another small business loan, you will likely want to consider all the possible advantages and disadvantages.
The pros of multiple SBA loans
Some reasons you might benefit from multiple SBA loans include:
- Large loan amounts. SBA loans offer small business owners some of the largest loan amounts possible. You can generally secure up to $350,000 with an SBA 7(a) loan from a bank in the SmartBiz network.
- Best rates and terms for a loan. Another notable benefit of SBA loans is their low interest rates and long repayment periods. Ten-year terms for an SBA loan breaks down into digestible monthly payments. You’ll typically have less risk of defaulting on an SBA loan, and that may help you keep your financial record healthy.
The cons of multiple SBA loans
Some reasons why you might think twice about taking out more than one SBA loan include:
- Lengthy application processes. Signing up for a second SBA loan doesn’t necessarily speed up or simplify these loans’ application process, which can be lengthy. Lenders will typically still go through their usual checks to determine whether you’re eligible, even if you qualified in the past.
- Personal risk. SBA loans typically do not require collateral, but a lien on business assets is required. Generally, when a lender files a lien against a business, they're granted a legal right to ownership over the borrower's personal or business assets in case of default. Multiple SBA loans can often mean more risk.
Tips on how to maintain eligibility for an SBA loan
Applying for a second SBA loan generally means continuing to meet the requirements. If you were eligible for the first loan, you’d likely qualify for the second, but it’s not a sure thing. Considering some of the tips below may help you qualify the second time around.
1. Meet the basic loan requirements
There are several basic requirements your business must meet to be eligible for SBA loans. Some of the criteria that your business generally must meet are:
- It has to be a for-profit venture
- It needs to operate within the United States
- It must belong to an SBA-approved industry
- You must have invested your own time and money into the business
- It needs to meet the SBA definition of a small business
2. Keep a good credit score
The minimum credit score required to qualify for many types of SBA loans is typically 640, though the higher, the better. It’s typically best to have a score higher than the minimum if you’re applying for a second loan. This generally helps reinforce your reliability as a borrower and reduces the potential financial risk of lending to your company. To apply for an SBA 7(a) loan from a bank in the SmartBiz network, a credit score above 650 is required.
3. Be in good standing on your current loans
Typically, the best way to convince your lender that you can handle additional debt is to consistently pay your current debts. Missing a payment here or there likely won’t hurt your chances too much, but if you’re regularly missing payments, the lender typically doesn’t have much reason to lend you more money.
4. Create a robust business plan
Telling an SBA lender what you plan to do with a loan may help you qualify. Financial institutions will generally want to know that the added working capital is going toward something that will increase your revenue. This way, you may more reliably pay off your debts. That’s where your business plan can come into play. This document details your strategy for using the added capital. It may help to convince the loan agent that you’ll consistently make monthly payments. Note that the banks in the SmartBiz network do not require a business plan.
5. Set up the potential for long-term success
Lenders typically don’t just look at whether your planned upgrades will generate new profits – they look at whether your funding will benefit your business long-term. SBA loans have a repayment period of 10 years, and the lender generally needs to be reassured that your business will last.
Determining future success isn’t an exact science, but lenders may come close when they know your debt service coverage ratio (DSCR). This figure is the ratio of your business’s annual net operating income and its annual debt service. The result represents how many times over you can pay your current debt obligations. Most lenders typically look for a DSCR of at least 1.0.
Find your SBA lender with SmartBiz
Before you apply for a second SBA loan, you have to find the right lender. Researching financial institutions can be time-consuming, but SmartBiz helps to speed up the process by matching you to the lender most likely to fund your loan. You won’t waste time going from bank to bank. Check now whether you-pre qualify* for a second SBA loan – and if not, SmartBiz may be able to help connect your business with other high-quality funding options including bank term loans and custom financing.
*We conduct a soft credit pull that will not affect your credit score. However, in processing your loan application, the lenders with whom we work will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and happens after your application is in the funding process and matched with a lender who is likely to fund your loan.
WHAT YOU NEED TO KNOW: The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial processionals for further information.