Key Takeaways
- Factors like your revenue, credit, debt, and business age all impact the funding you qualify for
- Paying down existing debt, opening credit building accounts, and getting strategic about your financial tracking can help you increase your approved loan amount
- Consider the timing of when you apply— slow seasons, unpaid client invoices, and the age of your business at the time of application can impact your loan size
- Choose to apply for a loan through a group dedicated to making the process efficient, affordable, and accessible
Your SBA 7(a) loan application was preapproved, but not for the amount you had hoped to receive. If you still have your sights set on that higher loan amount, there are steps you can take towards improving your eligibility.
When it comes to increasing your loan size, it’s important to understand what factors play a role in your qualification. Taking strides to make changes to your application can positively impact the amount you’re qualified to receive.
When it comes to increasing your loan size, it’s important to understand what factors play a role in your qualification. Taking strides to make changes to your application can positively impact the amount you’re qualified to receive.
What Factors Determine an SBA 7(a) Loan Amount?
Revenue
Proving you have sufficient cash flow to take on loan payments is extremely important.
Consider this calculation:
Consider this calculation:
- Calculate your business’s average annual revenue for the last 3 years, if applicable
- Subtract any existing debt you currently hold
- Find 25%-50% of that number; that is your ideal loan request range
Credit
While traditional FICO scores are not the ultimate determination when it comes to qualifying for an SBA 7(a) loan, creditworthiness is still a key part of the evaluation process.
Instead of relying solely on personal credit scores for SBA loan eligibility, NEWITY uses the SBA’s SBSS scoring model. Unlike individual credit scores, SBSS scores incorporate business and personal credit criteria to evaluate creditworthiness of SBA 7(a) loan applicants.
Indicators of a sufficient SBSS score include having at least two years in business, annual revenue of $100,000 or more, and maintaining a healthy cash balance— ideally enough to cover several months of loan payments. These factors help demonstrate your business’s ability to repay the loan and manage its finances responsibly.
Instead of relying solely on personal credit scores for SBA loan eligibility, NEWITY uses the SBA’s SBSS scoring model. Unlike individual credit scores, SBSS scores incorporate business and personal credit criteria to evaluate creditworthiness of SBA 7(a) loan applicants.
Indicators of a sufficient SBSS score include having at least two years in business, annual revenue of $100,000 or more, and maintaining a healthy cash balance— ideally enough to cover several months of loan payments. These factors help demonstrate your business’s ability to repay the loan and manage its finances responsibly.
Debt
Your Debt Service Coverage Ratio (DSCR) reflects your business’s ability to cover the debt it already holds based on your operating income. This metric also plays a large role in how much you qualify to receive in an SBA 7(a) loan.
Regardless of how high your revenue is, if you cannot afford to take on more debt in addition to the debt you already owe, you may not qualify for as much in an SBA 7(a) loan as you’d hoped.
Here’s how you can calculate your DSCR:
Net Operating Income (NOI)/Total Debt Service
*NOI= Income after expenses, before interest and taxes
*Total Debt Service= All required principal and interest payments on debt for a given period
DSCR > 1: The business generates enough income to cover its debt payments (healthy).
DSCR = 1: Income equals debt obligations (break-even).
DSCR < 1: Income is insufficient to cover debt (risk of default).
Factor potential monthly payments on an SBA 7(a) loan into this calculation to determine if your business can afford to take on more debt, and if so, how much.
If your desired loan amount does not yield a DSCR of greater than 1 at your current Net Operating Income, consider ways to boost your revenue to qualify for your desired funding.
Regardless of how high your revenue is, if you cannot afford to take on more debt in addition to the debt you already owe, you may not qualify for as much in an SBA 7(a) loan as you’d hoped.
Here’s how you can calculate your DSCR:
Net Operating Income (NOI)/Total Debt Service
*NOI= Income after expenses, before interest and taxes
*Total Debt Service= All required principal and interest payments on debt for a given period
DSCR > 1: The business generates enough income to cover its debt payments (healthy).
DSCR = 1: Income equals debt obligations (break-even).
DSCR < 1: Income is insufficient to cover debt (risk of default).
Factor potential monthly payments on an SBA 7(a) loan into this calculation to determine if your business can afford to take on more debt, and if so, how much.
If your desired loan amount does not yield a DSCR of greater than 1 at your current Net Operating Income, consider ways to boost your revenue to qualify for your desired funding.
Age
Lenders and the SBA use your business’s operating history as a way to assess stability and risk. A business that has been operating for two or more years has likely weathered some ups and downs, built a customer base, and developed predictable revenue patterns. That kind of track record gives lenders more confidence in your ability to repay a loan.
Your best chance at qualifying for an SBA 7(a) loan is if you’ve been in business for 2 years or more.
If your business is younger than 2 years old, we encourage you to apply so we can connect you with a financing option to help you grow and position you to qualify for an SBA loan in the future.
To verify your time in business, you’ll typically need to provide:
Your best chance at qualifying for an SBA 7(a) loan is if you’ve been in business for 2 years or more.
If your business is younger than 2 years old, we encourage you to apply so we can connect you with a financing option to help you grow and position you to qualify for an SBA loan in the future.
To verify your time in business, you’ll typically need to provide:
- Two years of filed business tax returns
- Business formation documents (e.g., Articles of Incorporation or LLC registration)
- Proof of consistent operations, such as bank statements or financial reports
How Can You Increase Your Loan Amount?
Through NEWITY’s application, you can receive preapproval in just 10 minutes. After receiving a preapproved loan amount, you have the option to re-apply after 90 days. This is an opportunity to take some time to reevaluate your finances and how you anticipate allocating the funds from an SBA 7(a) loan.
Pay Down Your Debt
Reducing your existing debt is one of the most effective ways to improve your loan eligibility. When you pay down credit cards, lines of credit, or other loans, you lower your monthly obligations, improving your DSCR.
Even small reductions in debt can make a big difference. For example, paying off a high-interest credit card or consolidating short-term loans can free up cash flow and reduce your overall liabilities.
Start by targeting debts with the highest interest rates or those that significantly detract from your monthly operating income.
You can also consider refinancing existing small business debt with an SBA 7(a) loan. An SBA 7(a) loan may offer lower monthly payments, lower interest rates, and longer repayment periods.
Additionally, SBA 7(a) loans through NEWITY do not require a down payment, making them particularly good candidates for debt refinancing.
Even small reductions in debt can make a big difference. For example, paying off a high-interest credit card or consolidating short-term loans can free up cash flow and reduce your overall liabilities.
Start by targeting debts with the highest interest rates or those that significantly detract from your monthly operating income.
You can also consider refinancing existing small business debt with an SBA 7(a) loan. An SBA 7(a) loan may offer lower monthly payments, lower interest rates, and longer repayment periods.
Additionally, SBA 7(a) loans through NEWITY do not require a down payment, making them particularly good candidates for debt refinancing.
Open a Credit Building Account
A credit-building account, such as a secured credit card or a credit-builder loan, helps establish a positive payment history without taking on excessive risk. These accounts report to credit bureaus, so consistent, on-time payments will gradually raise your score and strengthen your credit profile.
If your business is new or your personal credit needs improvement, opening a credit-building account is a proactive step that can pay off significantly when applying for an SBA 7(a) loan.
If your business is new or your personal credit needs improvement, opening a credit-building account is a proactive step that can pay off significantly when applying for an SBA 7(a) loan.
Implement Bookkeeping Strategies
Accurate and organized financial records are critical for SBA loan approval. Lenders require detailed documentation of your business’s revenue, expenses, and profitability to assess risk. Implementing bookkeeping strategies, such as using accounting software, reconciling accounts monthly, and categorizing expenses properly, ensure your financial statements are clear and credible.
Good bookkeeping also helps you identify areas to improve cash flow and reduce unnecessary expenses, which can boost your DSCR. When your financials are well-organized, lenders gain confidence in your ability to manage funds responsibly, increasing the likelihood of qualifying for a higher loan amount.
Good bookkeeping also helps you identify areas to improve cash flow and reduce unnecessary expenses, which can boost your DSCR. When your financials are well-organized, lenders gain confidence in your ability to manage funds responsibly, increasing the likelihood of qualifying for a higher loan amount.
Organize Your Documentation
Organization will help you in the long run.
Not only can disorganized or incomplete documentation delay approval, but by staying in-the-know on every facet of your business’s finances, you can better manage your overall financial portfolio and increase your chances of qualifying for a larger SBA 7(a) loan amount.
By organizing these documents ahead of time, you streamline the application process and present yourself as a prepared, professional borrower.
Create a checklist of required documents and store them in a secure, easily accessible location. Consider digitizing files for quick sharing with lenders. When your documentation is complete and well-structured, lenders can quickly verify your financial health, which can lead to faster approval.
Not only can disorganized or incomplete documentation delay approval, but by staying in-the-know on every facet of your business’s finances, you can better manage your overall financial portfolio and increase your chances of qualifying for a larger SBA 7(a) loan amount.
By organizing these documents ahead of time, you streamline the application process and present yourself as a prepared, professional borrower.
Create a checklist of required documents and store them in a secure, easily accessible location. Consider digitizing files for quick sharing with lenders. When your documentation is complete and well-structured, lenders can quickly verify your financial health, which can lead to faster approval.
When Is The Right Time To Apply
Just because you can reapply after only 90 days doesn’t always mean you should. Consider giving yourself extra time to get organized, improve your finances, and prepare for your next SBA 7(a) loan application.
In some cases, applying when your business is older may increase your SBSS score and therefore the likelihood of qualifying for a larger loan amount.
You can also be strategic about applying when your finances are strong. Wait until a round of client invoices are paid in full, the end of a busy season, or once you have your most recent tax returns, so your application reflects the most up to date version of your finances.
In some cases, applying when your business is older may increase your SBSS score and therefore the likelihood of qualifying for a larger loan amount.
You can also be strategic about applying when your finances are strong. Wait until a round of client invoices are paid in full, the end of a busy season, or once you have your most recent tax returns, so your application reflects the most up to date version of your finances.
Choose The Right Loan Facilitator
When it comes time to apply for your SBA 7(a) loan, the loan facilitator you choose makes a big difference in the funds you’re able to access and how quickly you’ll get funded.
At NEWITY, our team can help you get funded 3x faster than the national average. Our intuitive technology makes the application process simple and streamlined, and when reviewing your application, we perform a “soft pull” on your credit, so your credit score is not impacted.
At NEWITY, our team can help you get funded 3x faster than the national average. Our intuitive technology makes the application process simple and streamlined, and when reviewing your application, we perform a “soft pull” on your credit, so your credit score is not impacted.
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