Glossary · underwriting

Credit elsewhere test

Also called credit not available elsewhere, credit elsewhere requirement, non-availability of credit.

The SBA eligibility condition that the applicant could not obtain the credit on reasonable terms from non-federal sources without the agency's support, documented by the lender on every guaranteed file.

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What it means

A federal guarantee exists to make credit available where the market would not provide it. If the market would provide it, the guarantee is not supposed to be used. The lender must record, in the credit memorandum for each file, the specific factors that make conventional credit unavailable on reasonable terms.

What counts as a reason

The justification has to be specific to the applicant, not a general statement about small business lending. Factors that appear regularly:

  • The required maturity exceeds what the lender offers conventionally, which is the most common reason of all
  • Collateral coverage is insufficient for the lender's conventional policy
  • The business is too new, or the industry too cyclical, for the lender's ordinary credit box
  • Cash flow is adequate but does not meet conventional coverage requirements
  • The loan size or structure falls outside the lender's conventional lending limits for that credit profile

The other direction: your own resources

The test also looks at whether the applicant and its owners could reasonably fund the need themselves. Personal liquidity is examined for that reason, and programme rules have at various times included an explicit personal resources test with defined thresholds. The current position is set out in the agency's standard operating procedures and has been revised, so confirm it rather than relying on recollection. Questions about your personal balance sheet in an SBA file are not a lender being intrusive; they are a documentation requirement.

Where you meet it

As a paragraph in a credit memo you will never see, and as the reason for a decision that otherwise looks perverse.

Where this one catches people

The test explains the outcome that confuses strong applicants most: a profitable, well-collateralised, long-established business being told it does not qualify for an SBA loan. If you are conventionally bankable, the lender cannot write the credit-elsewhere justification, and the answer is a conventional loan — which is usually cheaper, faster and free of the guaranty fee anyway. Being turned down on this ground is not a rejection of your credit.

The reverse also catches people. Owners with significant personal liquidity are asked to put it in, because the programme is not designed to preserve an investment portfolio while the taxpayer stands behind the loan. Neither position is negotiable at the loan officer's desk, and arguing about it delays a file that was never going to move.

Where you will meet this term

SBA Loan

Read next

CollateralProperty a lender can take and sell if the debt is not paid, identified in the security agreement and made ef… Eligibility criteriaThe published and unpublished conditions a file must clear before a funder will consider it: time in business… Equity injectionThe borrower's own money going into a transaction alongside the loan, required by SBA on startups and changes… Personal financial statement (PFS)A signed schedule of an individual's assets, liabilities, income and contingent liabilities, required from si… SBA 504 loan (504)A three-part structure for owner-occupied real estate and long-life equipment: a bank first mortgage, a fixed… SBA 7(a) loan (7(a))The SBA's main guaranteed loan program, usable for working capital, equipment, real estate, business acquisit… SBA size standardsThe ceilings — by industry receipts or employee count, or under an alternate net worth and income test — that… Small Business Administration (SBA)The federal agency that guarantees a portion of loans made by banks and non-bank lenders to small businesses,… UnderwritingThe lender's assessment of whether and on what terms to fund, which in the bank-statement market is driven fa… Use of proceedsWhat the money is for — stated on the application, restricted in the agreement, and a covenant you can breach…

Credit elsewhere test — common questions

What does credit elsewhere test mean?

The SBA eligibility condition that the applicant could not obtain the credit on reasonable terms from non-federal sources without the agency's support, documented by the lender on every guaranteed file.

Where does credit elsewhere test catch people out?

The test explains the outcome that confuses strong applicants most: a profitable, well-collateralised, long-established business being told it does not qualify for an SBA loan. If you are conventionally bankable, the lender cannot write the credit-elsewhere justification, and the answer is a conventional loan — which is usually cheaper, faster and free of the guaranty fee anyway. Being turned down on this ground is not a rejection of your credit.

Is credit elsewhere test the same as an interest rate?

Credit elsewhere test is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.

Which products does credit elsewhere test apply to?

SBA Loan.

Is there a worked example of credit elsewhere test?

Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.

What else should I read alongside credit elsewhere test?

Collateral, Eligibility criteria, Equity injection, Personal financial statement, SBA 504 loan.

Has this definition been checked?

Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.

Is this legal advice?

No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.

Can I suggest a term?

Yes — [email protected]. The glossary grows from what people are actually shown in contracts.