Can You Take Out Multiple SBA Loans?
Most business owners are aware of the daunting fact that 29 percent of new businesses fail because they run out of cash. Fortunately, if you lack the funds to sustain normal business operations, 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 post.
What You Should Know About Taking Out Multiple SBA Loans:
The Basics of SBA Loans:
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.
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 financials to be approved. 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 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.
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.
- 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.
- Microloans up to $50,000 are available to smaller businesses to fund their general business 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 maximum borrowing amount ($5 million or $5.5 million, depending on the type of loan). You’ll also have to be in good standing with your current SBA loan(s), continue to meet the SBA’s eligibility requirements, and maintain a strong credit score, typically 680 or above. Finally, you’ll need to provide collateral for each additional SBA loan.
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.
Bottom Line: The Sky’s the Limit, But Be Careful When Borrowing From the SBA
SBA loans can be a great 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 fund your business needs. 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 will suffer, and you may even put your personal assets at risk.
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.