Yes. You can apply for a second SBA loan as long as your lender permits it. Note that you can apply and obtain multiple SBA loans all at the same time; however, the total amount you get can’t exceed the limits of the specific SBA loan program — applicable to the SBA 7(a) loan program, 504 loan program, and microloan program.
However, note that you cannot get multiple Economic Injury Disaster Loans, or EIDLs, for damages incurred as a result of a single declared disaster, like the COVID-19 pandemic.
According to reports, the SBA disaster loan program surely allows you to get an EIDL and a physical disaster loan if your business had to deal with property damage in addition to economic damages from a single declared disaster.
Howbeit, there’s no limit on how many SBA loans a borrower can take out, as long as you are eligible based on the SBA guidelines. In some cases, rapidly-growing companies can get as many as 9 SBA 504 loans all within 15 years.
Note that applying for an SBA loan can be a wonderful way to get financing from a bank, community development organization, or micro lender at reasonable terms. These loans are quite flexible and can be used to cater to your working capital needs or fixed assets. The SBA guarantees a portion of the loan, while the SBA-approved lender covers the rest.
Howbeit, SBA loans are always challenging to qualify for, especially since the SBA has rigid borrowing requirements. Aside from the many stringent borrowing requirements, you may also be expected to pledge personal assets as collateral, such as your home or business equipment.
However, lenders are always more willing to underwrite loans backed by the SBA because their rigid loan application process tends to reduce the risk that the borrower won’t repay their debt. But to qualify for a second SBA loan, your first loan will need to be in good standing, and you will need to show positive cash flow, strong credit, and enough collateral.
Conditions to Qualify for a Second SBA Loan
To qualify to take out more than one SBA loan, your business will need to meet the conditions noted below.
- Each loan will have to comply with the SBA’s eligibility requirements, as well as the lender’s eligibility requirements.
- You are not allowed to use the second SBA loan to pay back the first SBA loan, except in rare cases where you have new funding needs that the existing SBA lender won’t accommodate.
- Your current SBA loans will also need to be in good standing.
- You can’t exceed SBA loan program borrowing limits.
- You will have to show positive cash flow.
- You are expected to have a good credit score, ideally over 690.
- Depending on the loan amount, you will need to make available sufficient collateral.
- You will also have to sign a personal guarantee on each loan.
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How to Qualify for Multiple SBA Loans
If you, for any genuine reason, believe a second SBA loan is what you need to sustain your business growth, have in mind you will need to follow the same application process you went through with the first loan to qualify. However, before you start the application process, below are a few ways you can evaluate your business to note if a second SBA loan is the right financing option:
Evaluate Your Cash Flow
Note that one of the most tasking issues you will have to contend with when applying for multiple SBA loans is convincing the lender that you have enough cash flow to pay back all the debt. You will need to convince or show the lender that you have positive cash flow, and that you can keep your business running while still fulfilling your debt obligations.
In the United States lenders are known to evaluate cash flow with a wide range of documents, such as recent tax returns and financial statements. In most situations, they may also calculate your debt service coverage ratio (DSCR). DSCR more or less compares your business’s income to your outstanding loan payments, and you will need to have a DSCR of 1.15 or higher.
A good number of lenders will also look at your global debt service coverage ratio, and this tends to involve your personal income and personal debt in the analysis. You will also need to validate that your personal debts have not grown since getting your first SBA loan.
Check Your Credit Score
If your credit has dipped or suffered since obtaining your first SBA loan, have it in mind that it will be more challenging or nearly impossible to qualify for a second SBA Loan. Although requirements will most definitely vary, a good number of lenders will want a personal credit score of 690 or higher.
However, note that the different eligibility requirements work together. If you have, for example, good cash flow and enough collateral to provide, there is a good chance that you will get by with a slightly lower credit score.
Take Stock of Potential Collateral
Working with businesses that require multiple SBA loans entails that the lenders are taking on more risk than usual. Owing to that, coupled with asking for another personal guarantee and filing a lien on your business property, they may request physical collateral to secure the loan.
Have it in mind that these collaterals may come in the form of additional business assets, a life insurance policy, or real estate. Ideally, the more debt you take on, the more collateral you will be expected to provide.
This requirement can be quite easy for second-time borrowers especially since existing debt helps you buy inventory, equipment, and other assets that you can indeed provide as collateral in the future. However, if you have an asset-light business or are still trying to grow the business, then you could find it more difficult to secure a second SBA loan.
Conclusion
Most often, business owners are advised not to overextend themselves, and that is why the SBA and most lenders prefer to have a gap between SBA loans. But once you can make good progress when it comes to paying back the first loan, you get more opportunities to borrow extra funds.
However, you will be expected to show the lender that you have a growing business revenue and a history of timely loan payments. Aside from that, you may want to consider other types of financing that can better meet your current funding needs.