How to Understand the Credit Elsewhere Requirement for SBA 7(a) Loans

A recent report from the U.S. General Accounting Office (GAO) reveals that a large number of lenders are failing to comply with a key requirement for Small Business Administration (SBA) loans.

The issue is the lack of documentation of the "credit elsewhere" requirement that ensures the loans go to those businesses that need them most.

As seen in the recent post, "Exploring the State of American Small Business," there is still a high demand for small business funding and SBA loans are an excellent way to help those businesses to gain the funding needed to launch or expand. Entrepreneurs looking to access SBA loans need to know how to understand the 'credit elsewhere' requirement for SBA 7(a) loans.

The GAO Findings

The GAO conducted a year-long review of the SBA's flagship loan program -- 7(a) -- which gives borrowers great flexibility, low interest rates, and favorable repayment terms via a network of lenders. The SBA guarantees a portion of the loans, making the 7(a)-program favorable to lenders and borrowers alike.

The 7(a)-loan process requires lenders to verify and document that borrowers are unable to secure a portion or all the desired loan amounts from non-SBA sources without causing undue burden. 


The SBA relies on third-party contractors to conduct on-site reviews of lenders to ensure compliance.

The report found that there are serious problems with compliance with the guidelines. Among its findings:

  • More than 40 percent of on-site lender reviews completed in fiscal 2016 were not compliant with the "credit elsewhere" requirement.
  • Many noncompliance issues are caused by a lack of internal control processes within the lending institution.
  • The SBA does not require the on-site reviewers to document their evaluation of lender policies and procedures, so the agency is missing key information that would enhance compliance.

The report also criticized the SBA for not routinely collecting and analyzing the criteria that lenders use to make the "credit elsewhere" determination. "Without more robust information and analysis, SBA may be limited in its ability to understand how lenders are using the credit elsewhere criteria and identify patterns of use by certain lenders that place them at a higher risk of not reaching borrowers who cannot obtain credit from other sources at reasonable terms," the report states.

The GAO recommended that to address these gaps the SBA:

  • Require on-site reviewers to document their assessment of lender policies and procedures.
  • Collect data on lenders' use of "credit elsewhere" criteria.
  • Analyze collected information to find trends.

What It Means for Borrowers

The SBA agreed to the GAO recommendations, which should ensure that loans go to those with the greatest need. 

Navigating the loan process can be complex, which is why so many small business owners choose to work with an SBA loan specialist like Benetrends.  Benetrends helps ensure applications are complete, accurate and with the pre-qualification process are able pinpoint loan requests that may fall into the credit elsewhere category. To learn more about SBA loans and other ways to fund a business opportunity, schedule a consultation today. 

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