PrintIn order to be eligible for a Small Business Administration loan, you must apply and be turned down for a conventional loan by a commercial lender. By law, the SBA may not guarantee a loan if a business can obtain funds on reasonable terms from a bank or other private source. A borrower therefore must first seek private financing.
After being turned down for conventional or private financing, you may then go forward and apply for financing for your business under one of the SBA loan programs. The next step is to determine which type of SBA loan program is best for your business.
Preparation for Meeting with Your Lender
Lenders under any of the SBA loan programs will ask most of the same questions and need similar information, different from your applying for a traditional or conventional loan without the SBA's assistance.
The SBA recommends that you plan to bring the following information and documentation to your meeting with your lender when applying for a loan under any of its loan programs:
- Business plan: A written document describing your business, including type of business and legal form; annual sales; number of employees; length of time in business; and the ownership structure
- Financial statements (business): Complete financial statements for the past three years and current or interim financial statements
- Financial statements (personal): Statements of each owner, partner, officer, and stockholder owning 20 percent or more of the business
- Loan request: A description of how the loan proceeds will be used, along with the purpose, amount of loan request, and type of loan requested
- Collateral: A description of the collateral that will be used to secure the loan; description of equity in the business; potential to borrow funds; and availability of any cash
- Management resumés: The resumés of those who will be involved in operating the business
In addition, you should be prepared to discuss your loan proposal in detail with your lender.
Checklist of Required Papers for SBA Loans
The SBA offers a detailed checklist of required papers from applicants, which provides a much better idea of what it really wants from borrowers. This checklist contains 14 required documents and a statement of rules for applicants for SBA loan programs, as follows:
- Application for loan
- Statement of personal history, required for each principal applying for a 7(a) loan
- Personal financial statement
- Balance sheet and profit and loss statements
- Projection of income and finances
- List of names and addresses of any subsidiaries and affiliates
- Certificate of doing business
- Signed business federal income tax returns for previous three years
- Signed personal federal income tax returns for previous three years
- Personal résumé, including business experience of each principal of the business
- Brief history of the business and its problems, including explanation of why SBA loan is needed
- Copy of business lease
- Additional documents if proceeds will be used to purchase existing business
The checklist also contains the statement that the business must not be able to obtain funds on reasonable terms from a bank or private source. The business seeking SBA funding must be independently owned and operated and not dominant in its field and must meet certain standards of size in terms of employees or annual receipts. The checklist further states that applicants for SBA loans will be required to comply with SBA regulations concerning discrimination in employment or services to the public.
See a list of SBA forms.
Since the decision to lend to your business will largely be based on your financial statements, pay particular attention to providing careful, accurate, and complete statements. For more information, see AllBusiness.com sample income statement, comparative income statement, balance sheet, comparative balance sheet, and statement of cash flows.
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