SBA or Small Business Administration loans can be a great, low interest rate financing option for small business owners. There are also a ton of SBA lenders to choose from that specialize in different things. The problem with almost all SBA lenders is that they focus on borrowers with credit over 680 who have above average businesses. This means most borrowers with lower credit scores don’t usually get to take advantage of one of the best loan programs available. Are there SBA lenders who provide financing to borrowers with lower credit? The answer is…yes!
We’ve located the lenders that focus on providing SBA loans to borrowers who have credit under 680 and in some cases even down into the 500s. The lenders we will outline below enable small businesses usually shutout from SBA financing, to access superior market loan terms.
Subprime SBA Loans
If you search the internet using the terms “non-conforming SBA loans” or “subprime SBA loans” there is one lender that shows up. South End Capital is presently the only company catering to low credit borrowers looking to access SBA financing. Although South End Capital is a direct commercial real estate lender, it acts as an intermediary for its subprime SBA program. South End Capital uses its decades of experience and reputation to tap certain institutional lenders to provide SBA financing to borrowers not considered by banks and other conforming SBA lenders. The good news is that South End Capital’s subprime SBA rates and terms are often the same bankable terms offered to higher credit business owners. The company’s program is highlighted below:
- Loans Sizes from $30,000 to $23 million
- Interest Rates from 6.5%
- Monthly Loan Payments
- No Prepay Penalty Options
- 10 to 25 Year Amortizations
- 550 Credit Minimum (lower case-by-case)
- 1 Year Minimum Time in Business
- Few Restricted Industries
- Debt/MCA Consolidation
- Unrestricted Working Capital
- Construction Financing
- Nationwide Program
South End Capital also describes other details of its subprime SBA program on its website:
We offer streamlined Small Business Administration “SBA” loans for the non-conforming business owner. We have no collateral loan options and can provide up to 200% LTV (loan-to-value) in 1st, 2nd or 3rd position on real estate and/or equipment. Whether you are seeking working capital, funds to purchase real estate, equipment or a business; or want to refinance debt or consolidate merchant cash advances into an affordable monthly payment—we have the right loan for you. Apply below, there is no upfront credit pull, no application fee and most business types are considered (sorry, no startups).”
In review of South End Capital’s press releases and the loan closings on its website, we noted a number of different subprime SBA loans the firm has provided. Also, in 2018 the firm surpassed over $130 million in subprime SBA loan financing. It appears that almost any commercial real estate collateral is acceptable since South End Capital has closed subprime SBA loans secured by land, golf courses, motels, funeral homes, self-storage properties, resorts and even oil refineries. They’ve also provided subprime SBA financing to borrowers with credit in the low 500s, with recent foreclosures and bankruptcies, past-due income taxes, no real estate collateral, and other difficult to overcome issues.
Although South End Capital can provide SBA financing to businesses that normally don’t qualify, there are still some requirements that must be met for eligibility. Businesses must have filed at least one year of personal and business tax returns, meet a minimum DTI ratio of 1.0 times and a business DSCR ratio of 1.15 times. Back payroll taxes and open judgments must be paid off prior to closing, and your business industry cannot not be listed as ineligible by the SBA. South End Capital also does not lend to business startups (to be considered for startup financing we recommend Fountainhead).
Flexible Conforming SBA Lenders
It’s important to note that just because most SBA lenders focus on borrowers with the best credit, doesn’t mean that some of those lenders won’t consider outside of the box situations. SmartBiz can consider SBA loans for borrowers with credit down to 650. SmartBiz has high-level relationships with different institutional lenders, enabling it the flexibility to overcome certain barriers to financing. Having provided over $1 billion of SBA financing, SmartBiz has the experience to work through a variety of issues confronting non-conforming borrowers.
Fountainhead, our recommended conforming SBA lender, will consider lower borrower credit scores, is more flexible with its DSCR ratio requirements than most conforming SBA lenders, and it will also lend against special-purpose property. Fountainhead will also consider unique transaction types like startups, business purchases and construction loans.
Just because you may have low credit, weaker business cash-flow, your collateral may be special-purpose, or your use of proceeds unique; does not mean you cannot take advantage of the competitive pricing and terms offered under SBA loan programs. Working with a non-conforming or subprime SBA lender does not mean you will receive worse terms, since all the SBA lenders above also provide prime SBA loans to the best borrowers. What matters most is that you partner with an SBA loan provider that has significant experience navigating the SBA loan process and can help your business grow. Before you turn to a merchant cash advance provider or a more expensive alternative business lender, first reach out to one of the flexible SBA loan providers mentioned above.
Want to learn more about SBA loans? Contact our 2019 Best Commercial Real Estate Lender South End Capital, our 2019 Best SBA Lender Fountainhead, or our 2019 Best Business Working Capital provider SmartBiz.