SBA 7(a) Loan Checklist: Tips for a Strong Application

As a small business owner, the SBA 7(a) loan is a popular program that can help you gain the funding you need to launch and grow your business. Here, you’ll learn why it’s a great choice and how to prepare for the loan process – including an SBA 7(a) loan checklist for eligibility criteria and another for documents that you’ll need. By following these checklists and tips, you can streamline the application process and improve your chances of securing an SBA 7(a) loan.

What is the SBA 7(a) loan program?

If you want  a strong launch that will set you up for success as you grow, your business will likely need financing. Among your potential loan options, the SBA 7(a) loan is a terrific one. This program was developed by the U.S. Small Business Administration (SBA) to help entrepreneurs like you gain access to financing with more flexible eligibility and approval criteria than conventional bank loans.

The SBA 7(a) loan program provides variable-rate funding from $50,000 to $5 million for startups and growing businesses and supports most industries and uses. Additionally, most SBA 7(a) loans have terms up to 10 years for general funding and up to 25 years to purchase commercial real estate.

What are the SBA 7(a) eligibility requirements?

As with any loan, gathering information makes the application and approval processes easier for you and your lender. That’s why this SBA 7(a) loan checklist can help you simplify the process.

First, look at the SBA 7(a) eligibility requirements. Ideally, you and your business should meet most requirements:

1. Your business qualifies as a small business under the SBA’s guidelines. Your business must meet the SBA’s size standards, which vary by industry. Generally, you should have fewer than 500 employees and less than $7.5 million in average annual receipts for most non-manufacturing industries.
   
2. Your business is a for-profit enterprise. Non-profit organizations don’t qualify for SBA loans.
   
3. Your business must be located in the U.S. and its territories.
   
4. Your business must be in an eligible industry. Most industries qualify, including some that have a harder time qualifying for conventional bank loans like retail, restaurants, and childcare. However, there are some excluded industries that are not eligible to receive SBA loan.
   
5. Your personal credit history should demonstrate good use of credit. SBA loans offer more flexibility for borrowers with fair-to-good credit scores. Usually, you should have a minimum score of 640.
   
6. You can demonstrate an owner-equity investment. If your SBA 7(a) loan is used to start your business, you need some cash on-hand to invest in the business. If your business is already operating, the investment you’ve already made can likely be counted toward this requirement. Your lender will review the specific requirements for your loan and decide what can be counted as eligible owner equity.
   
7. You’ve applied for, and exhausted, other financing options. SBA loans offer more flexible terms and qualification criteria for business owners that aren’t able to qualify for conventional business loans. They offer a path to financing for startups and businesses in riskier industries.
   
   SBA loans also help when the loan terms from other lenders would cause financial distress for your business. For example, if you’re offered a loan with a five-year term, but you need a 10-year term to make the monthly payments more reasonable, and SBA loan may be a better option.
   
8. You can show that you can repay the loan. You must show that you can repay the loan by submitting a debt schedule of all your current debts. Your lender needs to confirm that you’ll be able to repay the new debt from your SBA 7(a) loan as well as any existing debt and operational expenses.
   
9. You can show how you’ll use your loan funds. Per the SBA loan requirements, your loan proceeds must be used for a “sound business purpose.” This includes working capital, equipment purchases, expansion, or refinancing existing business debt.
   
10. You can’t be overdue on other federal loans, including student loans. You must prove that you’re not delinquent on any existing federal debts. Some examples might include previous SBA loans, federal taxes, or student loans backed by the federal government.
    
11. Your business must have a recognized legal business structure. Before you can apply for an SBA 7(a) loan or other SBA programs, your business must already be organized as a sole proprietorship, partnership, limited liability company (LLC), corporation, or other legal business entity.

After reviewing the checklist, if you’re uncertain about whether you meet the eligibility requirements, contact a lender to talk it through.

What loan documents are required for SBA 7(a) loans?

Once you’ve determined that your business is eligible, you’re ready to gather the information you need and apply.

Your lender will give you the SBA-generated forms for your application, and anything specific that the lender needs. You’ll also need to gather information and documentation from your business, as well as personal financial records.

Here’s what you’ll need:

1. The Borrower Information Form (SBA Form 1919). This is the basic information that’s required about your business and any owners with a stake of 20% or more. Generally speaking, your lender will fill out this form, you simply just have to sign it.
   
   
2. Personal Financial Statement (SBA Form 413). This form gives the lender information about the personal finances of owners who have a 20% or greater ownership stake in your business.
   
   
3. Owner questionnaire. Owners who have a 20% or greater ownership stake in your business are required to be personal guarantors for the loan. When filling out this form, you and other owners will need to submit an SBA-approved form of photo ID, too.
   
4. Management profile or resume/s. Your lender and the SBA want to know that you and your team have experience that can support your success. Provide a management profile and/or resumes for all owners, including yourself.
   
5. Business-formation documents. Have a copy of your business-formation documents, as well as any required licenses or insurances.
   
6. Business financial statements. If your business is already operating, you’ll be required to provide the last three years of filed business tax returns, along with interim financial statements dated within 60 days of your application.
   
   If your most-recently completed fiscal year’s tax return is on extension, you’ll need to provide financial statements for that year and proof of extension. You’ll also give a list of all current business debts including creditors, original loan amounts, current balances, interest rates, and monthly payments.
   
7. Projected financial statements. You should have a detailed, two-year projection of income and expenses. Along with this, include a copy of your business plan to show lenders how you intend to meet your projections.
   
8. Personal tax returns. You’ll need to provide personal income-tax returns as well. These are required for any owners who have an ownership stake of 20% or more.
   
9. Business lease(s). If you lease your commercial property, your lender will need copies of lease agreements for all current locations, along with either the lease agreement, draft, or a letter of intent (LOI) for any new location(s).
   
10. Collateral documentation. In some cases, equipment or other goods purchased from the loan funds can serve as collateral. However, in other cases, you and any owners with a 20% or greater stake may be required to provide collateral to secure the loan. This is usually real estate, such as a primary residence, with the title to the property run during the closing process.
    
11. Legal documents. Depending on your business, you may need to provide your business’s Articles of Incorporation, contracts and agreements, and others. Your lender will advise you based on your situation.
    
12. Cost documents. For tangible items, you may be required to provide purchase agreements for business acquisitions; real estate purchases; furniture, fixtures, and equipment (FF&E) quotes; leasehold/renovation quotes; etc. Your lender will let you know exactly what’s needed for your loan.
    
13. Franchise agreement. If your business is a franchise, be prepared to provide a franchise agreement.

It’s important to know that your lender or the SBA may have additional forms or documents, such as an appraisal, that are needed before your loan can be approved – your lender will advise you about these as part of the application process. To keep the process moving forward efficiently, respond quickly to your lender’s requests and make sure what you’re submitting is accurate and complete.

Pursuit can guide you through the SBA 7(a) loan process and more

Every day, Pursuit helps business owners navigate the SBA 7(a) loan process – and a range of other business loans and a line of credit – to secure the financing needed to launch and grow. These SBA 7(a) loan checklists are intended as an overview of the process to help you be better prepared, but the best way to learn more is to contact our team today.