SBA loans are guaranteed by the federal government, which gives lenders an incentive to offer these loans to businesses with good terms and potentially lower interest rates than other types of startup financing. These loans are not granted by the government, but are rather provided by private lenders. However, because of the way these loans are structured, the documentation required and the process needed to obtain these loans can be quite involved. However, if you are looking for favorable terms and interest rates, an SBA loan might be something to consider when starting your small business. Not sure which loan might be best for you? A business attorney like Legal Counsel, P.A., in Orlando, Florida can review your situation and help you understand what options might be right for your situation.
Many small business owners use these loans to purchase a business or use the money as startup capital for their business idea. While SBA loans can have favorable terms, the level of scrutiny facing borrowers can be high. This article highlights the information that a borrower will need to supply to the lender in order to receive an SBA loan. If you plan to use an SBA loan to purchase a small business, the lender will also need to see the financials and legal documents of the business (which Legal Counsel, P.A. covered here). The purpose of this article, however, is to help small business borrowers understand what documents they will need to provide to the bank when seeking approval for an SBA loan.
Documents You’ll Need to Provide to Receive an SBA Loan
The bank will need quite a bit of documentation from you in order to approve your SBA loan. Additionally, the documentation you provide should show that you are of sound financial standing. Be prepared to explain any abnormalities to the bank. In order to receive an SBA loan, your bank will want to see:
- Three years’ worth of tax returns for yourself and your affiliates. The bank wants to make sure you’ve been paying your taxes, and don’t owe money in taxes. By providing tax returns, you show the bank that you’ve been filing your taxes and give the bank a chance to review your tax history for errors.
- Personal Financial Statement. This document presents a picture to the bank of your assets and liabilities. Basically, this is a document outlining the money and property you own (houses, cars, boats, cash on hand, retirement accounts, investments), and any outstanding loans you might have. When your liabilities are subtracted from your assets, the personal financial statement should show your net worth.
- This gives loan officers an image of your past experience and can also help them judge whether you have the experience or background needed to start a business or run a business of the type you want to start.
- Description of Business. This helps loan officers understand how the money will be used and for what type of business the money will be used.
- Copy of Asset Purchase Contract. If you are using an SBA loan to purchase a business, or to purchase assets, like real estate or equipment, the loan officers will want to see these contracts.
- Corporate formation documents. Corporations are required to provide articles of incorporation, a Certificate of Good Standing, bylaws, a list of officers, copies of issued stock and blank stock certificates for review, federal tax information, and fictitious name filing (if your business is run under a fictitious name). Limited liability companies are required to provide articles of organization, the operating agreement, membership unit certificate, federal tax ID number, and fictitious name filings, if required.
These are just some of the basic documentation you’ll need to provide when applying for an SBA loan. If you are purchasing a business, you’ll need to provide additional information including three years of the business tax returns, a current profit and loss statement from the business, a balance sheet, documents showing title to the equipment and property the business owns, and if the business leases a building, equipment, or vehicles, the leases for these. Liabilities must also be provided as well as information about the intangible assets owned by the business (websites, telephone numbers, email addresses, social media accounts). Licenses must also be provided if they are needed.
This is by no means an exhaustive list of all the documents you may be required to submit. The documentation you’ll need to provide to receive an SBA loan will depend on the type of business you are running, the reason why you need the loan, and your personal and business financial picture. Many business owners hire an attorney to assist them with the process of starting a small business. There are many documents that may need review during the process and many formal documents that may need to be submitted. Legal Counsel, P.A. is a business law firm in Orlando, Florida that may be able to assist you with this process. Have questions? We have answers. Contact Legal Counsel, P.A. today at 407-982-4321.