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SBA 7(a) Program Eligibility: “Credit Available Elsewhere”

Posted by Prudent Lenders in SBA 7(a) Lessons Learned – SBA Question? - Ask the Experts with No Comments

We have previously outlined in earlier posts the importance of eligibility for SBA lenders.  As you may recall, during SBA’s guaranty purchase review, if SBA concludes that a loan or borrower was ineligible at the time of loan approval, SBA will deny the guaranty (if processed under a lender’s delegated authority or the lender failed to disclose material facts at the time of application).

A lender’s failure to meet the “credit available elsewhere” test may also be cause for a determination of ineligibility.  In order to be eligible for an SBA loan, the small business must demonstrate a need for government guaranteed lending, which includes the requirement that the applicant be currently unable to obtain conventional financing on reasonable terms or from the personal resources of each holder of 20% or more of the business concern’s equity interests.  Lenders must document the following:

  • The Small Business Applicant is unable to obtain the loan on reasonable terms without a Federal government guaranty, and
  • Some or all of the loan is not available from any of the following sources:
  • (1) The resources of the applicant business; or (2) The personal resources of the principals of the applicant business.”

If the SBA finds that a lender did not meet the credit available elsewhere test, the loan request may be denied at the time of application (if submitted through General Processing procedures) or result in a full denial of the guaranty upon guaranty purchase review.  For more information on SBA’s lending programs, please contact us.

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