Can You Take Out Multiple SBA Loans - And Should You?
Especially during these uncertain times, while your business navigates the ongoing COVID-19 pandemic, ample financing is more crucial than ever. Fortunately, if you lack the funds to sustain your business operations or recover from the past few months, you have options.
Credit cards, lines of credit, term loans, and outside investments are all common financial solutions for small business owners. In fact, small businesses borrow approximately $600 billion each year.
In some cases, taking out one business loan isn’t enough to meet your business’s objectives. For instance, many entrepreneurs take out more than one Small Business Administration (SBA) loan since their terms are often more favorable than other financing options.
Still, while most SBA lenders will allow you to apply for multiple SBA loans, doing so comes with limitations and adds risk to your company balance sheet. Before applying for multiple SBA loans, there are a few things you should keep in mind, which we’ll detail in this blog post.
What You Should Know About Taking Out Multiple SBA Loans:
The Basics of SBA Loans:
Applying for an SBA loan can be a great way to obtain financing from a bank, community development organization, or microlender at reasonable terms. These loans are relatively flexible and can be used to cover working capital needs or fixed assets. Essentially, the SBA guarantees a portion of the loan, while the SBA approved lender covers the rest.
Yet, SBA loans are usually harder to qualify for, since the SBA has strict borrowing requirements. For example, you’ll need to have an excellent personal credit score and show solid business financial statements to be approved.
In addition, you may also be required to pledge personal assets as collateral, such as your home or business equipment.
Lenders are often more willing to underwrite loans backed by the SBA, since their stringent loan application process tends to reduce the risk that the borrower won’t repay their debt. In fact, over $24 billion in SBA loans were approved in fiscal year 2019.
The Types of SBA Loans:
SBA loans are offered through three main programs: 7(a), CDC/504, and microloans.
- SBA 7(a) loans are offered up to $5 million and can be used for a variety of business purposes. This is the SBA’s most popular loan program, as it provides broad funding solutions and more specialized options for a wide range of businesses.
If you’re interested in an SBA Express Loan, you’ll need to meet the eligibility requirements for the 7(a) loan program.
- SBA 504 loans offer long-term, fixed rate financing up to $5 million or $5.5 million for businesses that are part of a community to obtain fixed assets.
- SBA Microloans are smaller loans that come in amounts up to $50,000. These loans are available to smaller businesses to fund their general business needs.
In addition to these main types of SBA loans, the SBA also offers some other specific loan types, they include:
- SBA Disaster Loans: Disaster loans are provided to small businesses in a declared disaster zone. In addition, many business owners qualified for disaster loans if they were economically affected by the COVID-19 pandemic. Business owners can receive a disaster loan if they’ve already taken out an SBA loan, but the loans can’t be consolidated.
- SBA Caplines: The SBA provides fixed or revolving lines of credit up to $5 million to help business owners meet short term needs.
SBA Loan Limitations:
The good news is, if you qualify for an SBA loan, you can take out multiple SBA loans at the same time to fund your diverse business needs. Although there’s no limit as to how many SBA loans or types of SBA loans you can take out at once, there are certain restrictions you should be aware of.
First, you’ll need to stay within the SBA’s rules for maximum loan amount ($5 million or $5.5 million, depending on the type of loan).
You’ll also have to meet these additional financing requirements:
- Be in good standing with your current SBA loan(s)
- Continue to meet the SBA’s eligibility requirements
- Maintain a strong credit score, typically 680 or above
- Provide collateral for each additional SBA loan
The Pros and Cons of Taking out Multiple SBA Loans:
The primary benefit of taking out more than one SBA loan is additional access to capital at favorable terms. SBA loans generally offer the following:
- Larger loan amounts
- Lower down payments
- Lower interest rates
- Longer repayment terms
The major drawback of having multiple SBA loans is the added risk to your balance sheet. If your business is seasonal or has sporadic cash flow, you might have trouble making monthly loan payments.
This not only threatens the sustainability of your business and your ability to obtain financing in the future, it can also put your personal assets at risk. This is because lenders require collateral on additional loans.
In addition, you’re still subject to the SBA’s borrowing limits, even with multiple loans. That means if you want to borrow more than the limit — for example, $5 million for SBA 7(a) loans — you’ll need to apply for a different type of loan.
What Are My Other Business Financing Options?
If an SBA loan isn’t the right fit for your business, don’t be afraid to consider other financing options. These financing options include:
- Business loans from working capital lenders
- Merchant cash advances
- Business lines of credit
- Business credit cards
- Equipment financing
- Inventory loans
- Bridge loans
- Invoice financing
At Fora Financial, we provide small business loans to businesses nationwide. Our financing is tailored to fit your individual needs. To learn more about our flexible business financing options, click the link below:
Bottom Line: The Sky’s the Limit, But Be Careful When Borrowing From the SBA
SBA loans can be a great business financing option for small business owners. If your personal and business credit scores are strong enough to qualify, you might consider taking out multiple SBA loans to achieve your business goals.
Still, it’s important not to take on more debt than you can reasonably afford to pay back. If you fail to miss one or more payments, your credit score will likely suffer, and you may even put your personal assets at risk.
Editor’s Note: This post was updated for accuracy and comprehensiveness in August 2021.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.