The “Credit Elsewhere” Test

The U.S. Small Business Administration has always required an applicant to demonstrate the need for the desired credit, also known as the “credit not available elsewhere” test. In the new Standard Operating Procedure 50 10 5(J) which took effect January 1, 2018, the agency has issued some further guidance on how to identify that credit is not available from private sources.

In an application to the SBA, Alloy must now certify that the applicant does not have the ability to obtain some or all of the requested funds on reasonable terms from non-Federal sources, including the Third-Party Lender, without SBA assistance. The SBA has now determined that if the applicant’s cash flow and collateral, including any third party guarantee, would cause the applicant’s 504 loan request to meet the conventional credit standards of the Third-Party Lender, the project is not eligible for a 504 loan.

The SBA requires that the determination must include a review of related resources available to the applicant, including the liquidity of owners of 10% or more of the equity of the applicant small business, their spouses and minor children, and the applicant small business itself, or non-Federal sources unrelated to the applicant small business, including conventional lenders and other sources of credit.

To substantiate that credit is not available elsewhere, Alloy must show how the applicant does not meet the Third Party Lender’s conventional loan policy requirements. Such factors that demonstrate a weakness in the credit or exceed policy limits of the Third Party Lender include:

1. The business needs a longer maturity than the Third Party Lender’s policy permits,
2. The request loan exceeds the Third Party Lender’s policy limit regarding the amount it can lend to one customer.
3. The collateral does not meet the Third Party Lender’s policy requirements.
4. The Third Party Lender’s policy normally does not allow loans to new businesses or businesses in the applicant’s industry.
5. Any other factors relating to the credit, such as business or personal credit history, that in the Third Party Lender’s opinion cannot be overcome except for the SBA participation.

This new interpretation is applicable to both the SBA 7(a) and SBA 504 programs. Third Party Lenders will now need to document why the project cannot be financed conventionally when requesting SBA 504 participation. If you have any questions concerning the new credit not available elsewhere test, please give Alloy a call at 513-631-8292 or email us at

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