SBA Resource Center

Prospective business owners are often faced with weeks of waiting for financing approvals for both commercial and SBA loans. What many don’t realize is that their fate is often in their own hands. With proper preparation, borrowers can significantly influence not only the likelihood of approval but also the speed at which the loan moves from application to approval, closing, and ultimately funding. SBA lending may be detailed and documentation‑heavy, but the fundamentals behind approval decisions are transparent and navigable. Below are several key drivers that every borrower should understand before applying for an SBA loan.

1. Understand the SBA Loan Requirements

This is absolutely the first step in a successful loan journey. Long before you begin filling out your name on the application, make sure you’re familiar with what SBA lenders—and the SBA itself—expect.

• Check your credit score Most SBA lenders look for a personal credit score of 680 or higher. If your score falls below this threshold, consider delaying your application while you take steps to improve your credit. Paying down revolving balances, disputing inaccurate items, and ensuring all bills are paid on time for several consecutive months can meaningfully improve your score.

• Organize your financial documents SBA loans require a detailed look at your personal and business finances. Be prepared to provide:

• Personal and business tax returns (typically 3 years)
• Bank statements
• Year‑to‑date financials
• Any applicable business financial statements, such as P&Ls or balance sheets

Having these ready up front can shave weeks off underwriting time.

• Gather your operational and legal business documents Make sure you have core business documents organized and accessible, including:

• Articles of incorporation
• Operating agreements
• Business licenses
• A comprehensive business plan
• Key contracts or leases

The more complete your application package is, the faster the loan can move through the underwriting and approval process.

2. Shore Up Your Cash Flow

Cash flow is at the heart of every SBA credit decision. Lenders must show that the business generates (or is reasonably projected to generate) enough revenue to cover operating expenses and the new loan payment. This metric—known as Debt Service Coverage Ratio (DSCR)—is typically required to be 1.15x or higher for SBA approval.

If your cash flow is tight, consider:

• Reducing discretionary expenses
• Increasing pricing if justified by the market
• Demonstrating recurring or contracted revenue
• Preparing strong financial projections supported by reasonable assumptions

Lenders look for clarity and a believable path to repayment.

3. Determine Your Equity Position

Equity is your financial stake in the business, and it shows lenders you have “skin in the game.” For business acquisitions, SBA guidelines typically require 10% equity injection, though that can vary depending on risk factors such as industry, experience, or cash flow volatility.

Your equity may come from:

• Personal savings
• Gifted funds (with proper documentation)
• Seller financing structured on full standby
• Retained earnings for existing businesses

The stronger your equity position, the more comfortable a lender will be with approving your loan.

4. Ensure You Have Adequate Liquidity

Liquidity represents your personal or business financial cushion. It reassures lenders that you can weather unexpected challenges—delays in revenue, change in market conditions, or unforeseen expenses—without defaulting on the loan.

Before applying, assess your available liquid assets:

• Checking and savings accounts
• Marketable securities
• Cash reserves within the business

It’s wise to avoid draining all your liquidity to fund your equity injection. Lenders want to see that after closing, you still have a safety net.

5. Experience Matters

SBA lenders place significant weight on the borrower’s management experience and industry background. You do not necessarily need decades of expertise, but you should be able to demonstrate relevant skills that equip you to run the business successfully.

This experience may include:

• Direct industry experience
• Leadership or operational management roles
• Prior business ownership
• Professional certifications or specialized training

If gaps exist, lenders often look favorably on borrowers who bring in experienced managers. Demonstrating preparedness can make a measurable difference in your approval prospects.

Navigating the SBA loan process does not have to be overwhelming. In fact, by understanding the key drivers of loan approval and preparing thoroughly, borrowers can accelerate the timeline and position themselves as strong credit candidates. Good credit, solid cash flow, adequate equity, sufficient liquidity, and relevant experience form the foundation of a compelling loan package. When these are in place, lenders can move more quickly and confidently toward approval—helping prospective business owners turn their visions into thriving realities.