Pursuant to SOP 50 10 7 (effective August 1, 2023), the Small Business Administration (“SBA”) eliminated the detail required for a lender to determine whether an SBA borrower satisfies the SBA’s credit elsewhere test, which continues to be applicable as set forth in SOP 50 10 7.1 (effective November 15, 2023).
As stated in SOP 50 10 7.1 (click here to access the SOP on the SBA’s website), lenders must certify that the applicant does not have the ability to obtain some or all of the requested loan funds on reasonable terms from non-Federal, non-State, or non-local government sources, including from the SBA lender or third-party lender, without SBA assistance. Acceptable factors that support SBA lender certification and demonstrate an identifiable weakness in the credit or exceed policy limits of the SBA lender or the third-party lender include, among others:
- The business needs a longer maturity than the SBA lender’s/third-party lender’s policy permits to reasonably assure the ability of the loan applicant to repay the debt from the actual or projected cash flow of the business (for example, the business needs a loan that is not on a demand basis);
- The requested loan exceeds the SBA lender’s/third-party lender’s policy limit regarding the amount that it can lend to one customer;
- The collateral does not meet the SBA lender’s/third-party lender’s policy requirements;
- The SBA lender’s/third-party lender’s policy normally does not allow loans to new businesses (e.g., a business that has been in operation for a period of not more than 2 years) or businesses in the Applicant’s industry;
- Any other factors relating to the particular credit that, in the SBA lender’s/third-party lender’s opinion, cannot be overcome except for the guaranty. Examples of “other factors” may include business and personal credit history, management experience, leverage ratio, global cash flow, and loan size relative to the age of the business. The SBA lender may cite the applicant’s inability to meet the SBA lender’s conventional credit score policy as the sole reason that credit is not available elsewhere.
To assist with expediting the loan process, SBA encourages lenders to use automated processes for documenting the lack of credit elsewhere. Typically, the process involves checking a box from the list of acceptable factors described above As long as the acceptable factor(s) is checked, there is no additional SBA requirement for written justification. Additionally, lenders are not required to consider personal resources of the applicant.