The answer is yes. If you qualify, you may be able to take out multiple SBA loans to consolidate debt or boost working capital. SBA loans offer great rates and favorable terms, which are especially important in the current economic climate.
If previously your business qualified for a Small Business Administration (SBA) loan and 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 and have a good credit score. Want to learn more, click here.
The amount of funding you ask should 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.
One Example of having multiple SBA loans
You can have multiple SBA loans with funding totals up to each program’s borrowing limits. For example, a smaller SBA 7(a) express loan may 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 always 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 $5,000,000 with an SBA 7(a) loan.
· 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:
· The business has to be a for-profit venture
· The business needs to operate within the United States
· The business must belong to an SBA-approved industry
· You must have invested your own time and money into the business
· The business 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.
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.
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.