Documentation for a Small Business Loan

Ask M & M:

What are some of the documentation I should take to a lender to get a small business loan?

–Bill

Dear Bill:

Each lender has different requirements for a small business loan as well as varying interest rates and terms. According to the SBA common requirements include the following: a business plan that includes; the purpose of the loan (why you need a loan and what will you spend the money on), history of your business (how long have you been in business, competitive analysis and your unique selling position), projections of income, expenses, cash flow and assumptions made to develop your projections, personal financial statement of the owners, resumes showing experience and knowledge to run the business, your skin in the game (amount you have invested so far in the business), projected opening day balance sheet (showing assets, liabilities, owners’ equity), if leasing a copy of current lease (length of the lease should match time you are asking to pay back the loan), proposed collateral (what you are putting up to secure the loan in case of default).

Financial statements that should be included are the past 3 years of business tax returns, profit and loss statements, and interim financial statements within the past 120 days of the request for assistance, schedules of existing debt, age of accounts receivables and accounts payable. Generally the purpose of the loan dictates documentation required by any lender. Remember, lenders are interested in making business loans. However, they are very interested in making sure once they give you the money that you have to capabilities to pay them back.

Your financial history of borrowing and paying back monies will be considered as well as the current conditions and your current reason for a loan and how you will generate the money because of the loan to enable you to pay back any monies borrowed. The SBA does offer several loan programs (7(a), 504 loan, microloan program and an export express loan). These programs require a lender with the ability and willingness to make the loan, a small business with the ability to payback and resources to secure the loan.

The SBA acts as a guarantor to the lender if the small business is unable to payback. The SBA does not make the loan to the lender; they are the guarantors to the bank. The SBA will then go after the lender if they default. Remember the SBA does not provide grants for individual small businesses to start or grow a business. Source: 2015 Resource Guide for Small Business, US SBA, Arizona.

-M&M

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