Mastering the SBA Credit Elsewhere Test in 2025 with LoanBox
Mastering the SBA Credit Elsewhere Test in 2025 with LoanBox
Are you a small business owner or franchisee aiming to fund your venture with an SBA loan? Whether you’re launching a new franchise or expanding a local retail shop, the Credit Elsewhere Test is a critical hurdle to secure SBA financing. This test ensures you genuinely need the SBA’s low-rate, long-term loans because you can’t obtain affordable financing elsewhere. The updated SBA SOP 50 10 8, effective June 1, 2025, makes this test more rigorous, demanding robust documentation and stricter underwriting.
Let’s explore what the Credit Elsewhere Test entails. For LoanBox users it is mostly a non-issue as LoanBox automates the documentation for this requirement.
What to Know
The Credit Elsewhere Test is a cornerstone of SBA loan eligibility, requiring proof that you cannot secure financing from non-federal, non-state, or non-local government sources on reasonable terms. It protects the SBA’s mission to support underserved businesses, ensuring loans with favorable terms reach those who need them most.
Understanding the Credit Elsewhere Test
Its purpose is to verify that SBA loans are necessary by confirming you can’t access conventional financing at better terms.
No Viable Alternatives: Banks, credit unions, or online lenders either deny your loan application or offer terms (e.g., high interest rates, short repayment periods) that your business cannot sustain.
Unreasonable Terms: The SBA defines “reasonable” based on your industry, credit, and cash flow. For example, a 15% interest rate or 2-year term may be unaffordable for a stable franchise but acceptable for a high-risk startup.
Evidence Needed: Loan denials, high-rate loan offers, or a financial analysis showing why conventional terms are unfeasible due to your credit, collateral, or cash flow constraints.
Collateral and the Test
Collateral requirements tie into the test, as limited collateral often strengthens your case by showing why conventional lenders declined: Lack of sufficient collateral (e.g., no real estate) can justify conventional denials, supporting your Credit Elsewhere Test case.
How to Pass the Credit Elsewhere Test
Passing the test requires demonstrating that non-SBA financing is unavailable or unaffordable. Here are actionable tips:
Use LoanBox for your loan and everything is handled automatically.
OR
Here are key ways to demonstrate evidence needed:
Apply to Multiple Lenders: Submit loan applications to at least two non-SBA lenders (e.g., banks, online platforms like Funding Circle). Retain:
Denial Letters: Proof of rejection due to credit, collateral, or risk.
Loan Offers: Documents showing unaffordable terms (e.g., 15% rate, 3-year term).
Document Unaffordable Terms: If offered a loan, explain why it’s unreasonable:
High Rates: E.g., 9%-18% vs. SBA’s 9%–11%.
Short Terms: E.g., 2 years vs. SBA’s 7–25 years.
Collateral Demands: E.g., excessive asset pledges your business can’t meet.
Highlight Business Challenges: Provide a narrative or financial analysis showing why your business can’t handle conventional loans, due to:
Limited credit history (e.g., startups).
Weak cash flow (e.g., DSCR <1.4).
Insufficient collateral (e.g., no real estate).
LoanBox Takes the Test for You
LoanBox matches borrowers with both conventional and SBA loans and lenders. For applicants who qualify for conventional lending will receive conventional loan proposal(s). For applicants who don’t qualify our platform identifies the reasons and creates documentation for the credit elsewhere details and includes in your loan package.
For smart business lending think inside the LoanBox. Just log in, answer questionnaires, complete your loan package, and the platform will match you to the exact right lenders you match 100% of dozens of criteria points. Select which lenders you want to access your loan package and offer a loan proposal. Receive loan proposals from interested lenders, select the winning lender, and always know what’s going on from application to funding and what’s needed next in the loan process. Or have a friendly LoanBox Advisor just handle everything for you.