SBA Loans - Chapter 2
In Chapter 1 of the SBA mini-series, we discussed what an SBA Loan is and some of the high level advantages and disadvantages. Chapter 2 is going to focus on how the SBA loan works in practice and the normal process of getting approved for one. To be prepared for receiving an SBA Loan, you will need to collect some extensive information on both you and the business to get approved. The size of the loan can be a major factor, but the basic requirements of all SBA Loans are outlined below.
Personal Credit Report & Score - We recommend pulling your credit report from all three major agencies that provide credit scores. This is the ability to make sure that you are not layering debt on top of debt and to see if you have taken the time to build credit prior to buying a business.
Professional Resume - SBA wants to ensure that you have some relative experience and the ability to run a business. This is nothing like a job interview so do not get intimidated by this process. You do not need years of experience in successfully growing any small business, all you need is the basics of what a professional may have to run a business.
Personal Background - This should be a personal resume of sorts where you outline any information that pertains to your personal life. Some of examples are previous addresses, partners, criminal records and/or education.
Personal Tax Returns - SBA will want to verify your personal tax returns from at least the two prior years but 3+ is preferred. This provides security to SBA that if the business fails you are able to repay the loan reasonably from your personal income. This also provides them an idea of net worth and liquidity in your personal assets and liabilities.
Business Credit Report - We recommend that you work with the seller to obtain the credit report of the business that you can share with the SBA. This will give them confidence that the business is in good standing and will have the ability to repay the loan.
Legal Documents - This should be a simple process of collecting information such as articles of incorporation, contracts with any third parties, ownership of assets and liabilities, EIN number, and business ownership information. This is the SBA wanting to ensure that the business has no outlying issues and to ensure that the business is as stated by you.
The SBA requires an extensive amount of information for any buyer because most users of SBA loans are putting down between 10%-20% of the total purchase price. As you are going through the process to buy a business you must keep in mind that this process can be slow based on the size of the loan. The SBA promises a turnaround time of 36 hours for their express loans. However, that does not include the time it takes for the lender to approve the loan, which could tack on another few weeks. When planning to acquire a business, it's wise to anticipate 60-90 days for the SBA loan processing time when all is said and done.