This article was updated on March 24, 2020. Updates to this article will be made as new information becomes available.
Schneider Downs continues to track the evolving landscape of financial programs offered to small businesses disrupted by the coronavirus (COVID-19). This is a summary of the U.S. Small Business Administration (“SBA”) loan process and documents needed to apply for an SBA loan, prior to any of the new legislation passed by the federal government as a result of COVID-19. Schneider Downs can assist with the application process and the documents necessary for these loans.
The SBA works with lenders to provide loans to small businesses. The SBA doesn’t lend money directly to small business owners. Instead, it sets guidelines for loans made by its partnering lenders, community development organizations, and micro-lending institutions. The SBA reduces risk for lenders and makes it easier for them to access capital, which makes it easier for small businesses to get loans.
Benefits of SBA-Guaranteed Loans
SBA-guaranteed loans generally have rate and fees that are comparable to non-guaranteed loans. Additionally, some loans have lower down payments, flexible overhead requirements and no collateral requirements. The SBA also offers continued support with some loans.
Loan Amounts and Business Purpose
The 7(a) loan program is the SBA’s primary program for providing financial assistance to small businesses and this program is currently being proposed as part of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.
Lenders and loan programs have unique eligibility requirements, remembering that these requirements may change with the final version of the CARES Act. Generally, eligibility prior to the CARES Act is based on the following:
Be a for-profit business – the business is officially registered and operates legally
Have invested equity – the business owner has invested their own time or money into the business
Do business in the U.S. – the business is physically located and operates in the U.S. or its territories
Exhaust financing options – the business cannot get funds from any other financial lender
Normally, businesses must meet size standards, be able to repay, and have a sound business purpose. Even those with bad credit may qualify for startup funding. A lender will provide a business with a full list of eligibility requirements for a business loan.
The SBA loan application process works as follows:
Describe your business needs – answer a few question about the business
Get matched in 2 business days – receive email with contact information of lender who express interest in loan
Talk to lenders – compare rates, terms, fees and more
Apply for loans – submit loan applications and paperwork
Brief Checklist before Meeting with a Lender
Before meeting with a lender and prior to any changes in the CARES Act, a business should have the following information or documents ready for a 7(a) loan application:
Business plan – most lenders will expect a business plan when applying for funding
Amount and use of funds – a business should know how much capital is needed and how it will help the business
Credit history – lenders will use credit scores to determine credit risk and interest rate. The SBA may help guarantee some loans that otherwise may not qualify.
Financial projections – a business needs to understand its finances, how funds will be used and how the business plans to pay back the loan.
Collateral – many lenders require a business to use another asset to guarantee the loan. This may be a home, car, inventory or other property owned.
Industry experience – this may not be required, but it’s helpful. Knowledge of the business’ industry can make a lender feel confident about making the loan.
Borrower information form – to begin the process, a small business owner will need to complete SBA Form 1919. This form must be completed by all associates of the business applicant as required on the form, to include all owners of 20% or more of the business, all officers and directors, managing members, any person hired to manage the day-to-day operations and any other person who is guaranteeing the loan.
Personal background and financial statement
Statement of Personal History – SBA Form 912 (if required after completing Form 1919)
Personal Financial Statement – SBA Form 413 (not required, but available for lenders to use)
Business financial statement – to support the application and the ability to repay the loan, the following statements must be prepared:
Year-end Profit and Loss Statement (last three years)
Year-end Balance Sheet (last three years, including a detailed debt schedule)
Reconciliation of Net Worth
Interim Balance Sheet
Interim Profit & Loss Statements
Projected Financial Statements (includes month to month cash flow projections, for at least a one-year period)
Business certificate/license – small business owners will need to be able to provide the original business license or certificate of doing business when closing the loan. If the business is a corporation, stamp the corporate seal on the SBA loan application form. This information should be readily available to provide to the lender.
Loan application history – include records of any loans the small business owner may have applied for in the past
Income tax returns – include the business’ signed federal income tax returns for the previous three years
Resumes – include personal resumes for each principal
Business overview and history – provide a history of the business and its challenges. Include an explanation of why the SBA loan is needed and how it will help the business
Business lease – include a copy of the business lease, or note for a landlord, giving terms of the proposed lease
These documents are not necessary for an SBA Disaster Loan and may not be necessary for loans under the CARES Act.
Please contact Schneider Downs if you have questions regarding the documents needed for the SBA loan process.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.