For SBA lenders
Short answer
Lenders must confirm that the applicant business cannot obtain credit elsewhere on reasonable terms without a federal guaranty. This is a fundamental 'credit elsewhere' test.
SBA regulations require lenders to document their consideration of whether the applicant can obtain financing without SBA assistance. This involves evaluating the business's ability to access conventional credit, typically through market rates and terms, and documenting why the conventional market is not meeting the need.
For a $1M loan, a lender's credit memo would detail current market rates for conventional loans of similar size and risk, and explain why the borrower either doesn't qualify (e.g., insufficient collateral, industry risk) or why the terms offered are unreasonable compared to SBA's.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
7(a) Loan Program — Terms, Conditions, and Eligibility
U.S. Small Business Administration · Official SBA source
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
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