Before the 2008 financial crisis, many would-be business owners weren’t able to get traditional bank loans or line of credit to start a small business. Fortunately the Small Business Administration stepped in and introduced the 7(a) Loan Guaranty program through banks across America. In general, an SBA loan can provide up to $5 million in financing for equipment, supplies, real estate, and working capital.

An SBA loan is a business loan guaranteed by the United States Small Business Administration (SBA). This program was created to help small businesses get the funding they need to fuel their success. And as of June 2016, more than $150 billion in loans have been guaranteed.

The current loan program was created in 1953 to help finance the growth and operations of small companies, which were severely hurt after World War II ended. At that time, banks were not interested in making loans to businesses with less than $500,000 in annual revenue. Yet many small businesses needed financing for growth.

The solution was the creation of an SBA lending program, which offers loans to small businesses with less than $5 million in annual revenue, and up to $5 million in financing. Most borrowers take out a loan for around $150,000 and use it to finance inventory and other working capital needs. The maximum term for a 7(a) loan is six years, with the first five years interest-only. The final sixth year offers no principal or interest payments.

Eligibility Requirements

To be eligible for an SBA 7a loan, businesses must meet the following criteria:

The business operates in the U.S., its territories or possessions; or the business is owned by a U.S. citizen living abroad; or the business is operated principally by U.S. citizens living abroad.

The business has been operating for at least one year (two years in some cases). The owner(s) have invested their own capital in the company, or can certify that they are able to obtain a loan from other sources.

The business has been profitable from its operations for the past two years. If you meet all these requirements, you could be eligible for an SBA loan through one of these banks: BankUnited, BOK Financial, TD Bank, RBC Royal Bank, Wells Fargo. There are several factors that determine the amount of your SBA loan, such as how much money is needed, the borrower’s credit score and collateral.

Eligible Collateral for an SBA Loan

An SBA loan can be used to purchase or refinance a business asset, such as: Commercial real estate (including multi-family property) Equipment and inventory Small business stock Some other asset that helps your business generate income The SBA will not make a loan secured by real estate unless it is used to purchase commercial property (for example, an office building) or equipment.

An SBA loan cannot be used to refinance non-commercial personal property; however, you can borrow up to $1.5 million to refinance existing business assets.

Applicants must be able to demonstrate that there are no other available funds for the purchase of equipment, inventory, or real estate. Before you go forward with applying for an SBA loan, make sure you understand what kind of collateral you can use and how much money can be borrowed. Lenders also determine eligibility based on a borrower’s credit score.

Credit Requirements for an SBA Loan

The SBA uses two credit-score thresholds to evaluate your business loan application. This is important because you may qualify with one lender but not another, depending on which credit-score threshold they use.