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  Prepare an SBA Loan Application



   
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Documents Required for Submission
with SBA Loan Application


  • Loan application
  • Statement of Personal History
  • Personal Financial Statement
  • Signed personal Federal Income Tax returns for previous 3 years
  • Personal resume detailing business experience of each participating owner
  • Balance sheets and profit and loss statements for the last three fiscal years
  • Balance sheet and profit and loss statements completed within 90 days of application
  • Aging of accounts receivable and payable completed within 90 days of application
  • Cash flow projections for one year by month with a written explanation as to how you expect to achieve these estimates
  • Signed business Federal Income Tax returns for previous 3 years
  • Brief history of business and its problems, including an explanation of why the SBA loan is needed and how it will help the business
  • List of names for any concerns which the applicant has at least a 20% interest
    • Description, including ownership structure, of business
    • Tax returns for the last three years
    • Interim financial statement completed within the last 90 days
  • Certificate of Doing Business
  • Copy of business lease
  • If you are using the loan to purchase real estate, you should include:
    • Executed purchase agreement
    • Evidence of down payment
  • If you are using the loan for construction related activities, you should include:
    • Construction cost breakdown detail
    • Construction contract
    • Copy of plans and specifications
  • If the loan will be used to finance a start-up or working capital request, the following-documents must be included:
    • Monthly projection of cash flow for the first year, with assumptions clearly explained
    • Annual projected income statement and balance sheet for second year
    • Business plan including supporting assumptions for financial projections
  • If the loan will be used to finance the purchase of equipment, you should include:
    • Description of equipment
    • Copy of the buy/sell agreement or purchase order
  • If you are using the loan for debt refinancing, you must include:
    • Copy of notes to pay off
  • If you are purchasing an existing business with the loan proceeds, include:
    • Current balance sheet and profit and loss statement of the business to be purchased
    • Year-end financial statements for the last three years
    • Business history
    • Federal Income Tax return of business for previous 3 years
    • Proposed Bill of Sale including the terms of the sale
    • Schedule of inventory, machinery and equipment, and furniture and fixtures
    • Business plan including supporting assumptions for financial projection
  • If you will be using real estate as collateral, you must include:
    • Equity Addendum
    • Statement of Identity
  • If you will be purchasing a franchise with the loan proceeds, you must include:
    • Franchise agreement
    • Franchise Offering Circular or Letter of Intent

Loan Application

This link www.sba.gov/sbaforms/sba4.pdf takes you to the application for a 7(a) business loan. This is the most common loan financed by lenders participating in the SBA program. Understanding the required information is crucial to filling out any loan application.

The application begins by asking for individual and business information. You should be able to describe the type of business, the date it was established, and the number of employees prior to and following receipt of the loan.

The next section will ask the applicant to determine the purpose of the loan and the amount needed. The 7(a) loan can be used to acquire land, construct or expand facilities, acquire machinery or equipment, assist in purchasing inventory or acquiring working capital, acquire an existing business, and/or payoff a SBA or other bank loans. Applicants should estimate the amount of money they need as well as the term. You should also be prepared to estimate how much additional sales will be achieved because of the loan, and what your payback strategy will be.

The third section of the application requires applicants to list previous requests for Federal aid, even accounts that are delinquent. Applicants will need to list the name of the agency owning the debt, the original amount borrowed, the original date of disbursement, whether or not the loan was approved, the balance of the loan, and the current status.

The remaining sections of the application ask for the applicant to list the names of those persons who assisted in completing the form as well as any other debt for which the company is responsible. Lastly, all owners should list their contact information and the percentage of equity attributed to them.

The remaining portion of the application pertains to the supplemental information that should accompany the application. The documents required are listed above. The application designates each required document as a specific exhibit. The exhibits are listed as supplemental questions one through nineteen.

Statement of Personal History

A required document in the SBA loan process is the statement of personal history. You can obtain a copy at www.sba.gov/sbaforms/sba912.pdf. Each proprietor responsible for the business should fill out this form. The purpose of this document is to determine the character of each applicant. You should be prepared to answer questions about your criminal record. The SBA reserves the right to request criminal records to corroborate your answers.

Personal Financial Statement

The SBA provides a form for applicants to use for determining their personal assets and liabilities. Each owner should complete this form. You can obtain a copy at www.sba.gov/sbaforms/sba413.pdf.

The personal financial statement will provide lenders with information on what assets and liabilities owners bring to the table. Assets include cash, investments, and salary. Liabilities include mortgages, notes payable, and unpaid taxes. Lenders will use this personal financial statement to help determine applicant's credit worthiness.

Balance sheets and profit and loss statements for the last three fiscal years

Balance sheets: The purpose of the balance sheet is to provide prospective lenders with a snapshot of the company's financial position at one moment in time. It shows what a company owns (assets) and what it owes (liabilities and net worth). This financial document is called a balance sheet because at the bottom line, everything must balance (assets= liabilities + net worth).

The liability and net worth section of the balance sheet tells prospective lenders about the company's source of funds. Liabilities reflect the company's obligation to creditors while net worth represents the owner's interest in the company. The asset portion of the balance sheet shows how the company uses its funds to purchase items of value to the business. The balance sheet should provide any analyst with information on where the business is in its operating cycle (the process of using cash to purchase current assets that are then sold at a profit and collected as cash).

Your prepared balance sheet will include the following information:

Assets
Current Assets
Cash 283
Accounts Receivables 210
Inventory 2,041
Prepaid Expenses 97
   
Non-Current Assets
Fixed Assets 2,313
Intangibles 2,231
   
Other Assets
Deposits and Long-Term
Notes Receivables
901
   
Total Assets $8,076


Liabilities
Current Liabilities
Accounts Payable 878
Accrued Expenses 777
Notes Payable - Bank 172.50
Current Portion Long-Term Debt 172.50
   
Non-Current Liabilities
Non-Current Portion of
Long-Term Debt
1,816
Shareholder/Owner Loans 846
   
Total Liabilities $4,662
   
Equity
Common Stock 30
Paid in Capital 444
   
Total Equity $3,414
   
Total Liabilities and
Total Equity
$8,076

Total assets will always equal total liabilities and total net worth. If you need a tutorial on preparing balance sheets, the SBA provides help at www.onlinewbc.gov/docs/finance/fs_incstmt1.html.

Profit and loss (P&L) statements: The profit and loss (income) statement is another valuable information source lenders use in the evaluation process. The P&L statement measures business revenues against expenses for a given period. It shows how profitable a business is. A profit and loss statement will include the following items and look very similar to this example:

Revenue Projection
Total net sales (TNS) $11,019
Cost of sales(COS) (7,604)
Gross profit (TNS-COS=GP) 3,415
Gross Profit Margin (GP/TNS) 0.31
   
Controllable Expenses (CE)
Salaries/wages $1,000
Payroll expenses 700
Legal / accounting expenses 300
Advertising 150
Office supplies 100
Dues / subscriptions 55
Utilities 120
Other 35
   
Fixed Expenses (FE)
Rent $500
Insurance 130
License / permits 15
Loan payments 75
Depreciation 35
Miscellaneous 0
   
Total expenses (CE+FE) $3,215
   
Net profit (loss) (GP-Expenses) $200
   
Other income (expense)  
Interest expense (117)
   
Earnings before Taxes 91
Taxes 24
   
Net profit (loss) after taxes $67

Balance sheet and profit and loss statements completed within 90 days of application

Year-end financial statements must be duplicated for the last 90 days prior to filling out a loan application. Lenders are looking to obtain a recent snapshot of the business' financial viability. If you need assistance in creating these snapshot documents, you may want to consider soliciting the services of an accountant. An alternative would also be to contact your local SBA office for a list of the retired executives participating in the SCORE network.

Aging of Accounts Receivable and Payable

These statements provide the lender with information on how long it takes your company to receive payments from consumers as well as how long it takes you to pay your creditors. This information is related to what is included in creating your balance sheet. It is recommended that you utilize the services of the Service Corp of Retired Executives (SCORE) for help in preparing your financial information. To locate the SCORE chapter near you, review the list provided on the SBA Web Site at www.sba.gov/gopher/Local-Information/Service-Corps-Of-Retired-Executives.

Cash flow projections for one year by month with a written explanation as to how you expect to achieve these estimates

Reporting cash flow is vital to the loan application because lenders want to see that you have enough cash to make your monthly loan payments. The actual statement is designed to track cash as it flows in and out of your business. A positive cash flow indicates that the business can cover its daily operational working capital needs. A negative cash flow, on the other hand, indicates the need for outside funds to provide working capital for business operations. Lenders are looking for the following information in your statement - how much cash does this business require, how will expected growth be funded, and are the assumptions used to develop the projections reasonable and well substantiated?

Preparing a cash flow statement is like preparing your budget and balancing your checkbook at the same time. It deals only with actual cash transactions whereas the income statement includes non-cash items like depreciation. Short-term cash flow projections are recommended for your loan application; therefore you should prepare cash projections for each month in the year ahead. It will be used to determine working capital requirements.

Cash flow statements generally have three components to them - cash flows for operating activities, cash flows for investing activities, and cash flows for financing activities. If done correctly, the statement will provide your lender with an explanation of how you have used previous funds.

To determine operating cash flow, start with net profit after taxes and add back expenses that did not result in inflows or outflows of cash. The most common non-cash expense that you will add in is depreciation. Next, identify all balance sheet accounts that are associated with operations and determine the change in the account from the end of the last period to the end of the current period. The most common balance sheet accounts associated with normal operations include receivables, payables, accrued expenses, prepaid expenses, and other current assets that are a part of day-to-day operations. Remaining balance sheet accounts will either fall under investing or financing activities. As with operating expenses, you determine the change in each balance sheet account from the beginning of the period to the end of the period. When drafting your cash flow statement, all assumptions must be clearly laid out in footnotes. An example of a cash flow statement follows:

Operating Cash Flow
Net earnings $67
Depreciation and amortization 35
Accounts receivable 415
Merchandise inventory 228
Accounts payable and accrued expenses (241)
   
Total Operating Cash Flow $504
   
Investing Cash Flow
Purchase of equipment (705)
Decrease in notes receivable 0
   
Total Investing Cash Flow ($705)
   
Financing Cash Flow
Increase in long-term notes payable 1,214
Increase in term loan (1,024)
Exercise of stock options 19
   
Total Financing Cash Flow $209
   
Increase/decrease during the year 8
Beginning of year 275
   
Total Cash Flow $283

If you find that you need additional information about the purpose of cash flow statements or how to prepare them, SBA provides an easy-to-use tutorial at www.onlinewbc.gov/docs/finance/cashflow.html.

Brief history of business and its problems, including an explanation of why the SBA loan is needed and how it will help the business

You must present a solid description of your business. Include a brief overview of the history of your business, plus a summary of current activities. Make sure you clearly demonstrate that you understand your markets and industry (current trends and risks). Include literature showing your products or services. It is also helpful to include letters from suppliers, customers and other business references. You want to summarize how the proposed loan will be used, how it will be repaid and how it will benefit your business.

Business plan

The purpose of the business plan is to provide the lender with:

  • A description of the business' main components (e.g. personnel, operating procedures, product or service to be provided), its marketing strategy, and main competitors
  • Financial data, including descriptions of capital and existing supplies, balance sheets, breakeven analysis, income projections, and pro-forms cash flows
  • Important supporting documents such as personal and business tax returns, personal financial statements, and appropriate legal documents (licenses, contracts, and leases)

This document is used to evaluate new businesses that have a limited history. The SBA provides an excellent tutorial on how to complete a business plan. You can find the lesson at www.sba.gov/starting/indexbusplans.html.