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Applying for a Loan

Business Loan and Grants

Small Business Loans

Government agencies generally do not make loans directly to business owners. The government provides a guaranty to banks and lenders for money lent to small businesses. This guaranty is a promise to pay a portion of the loan back to the bank in case a business owner defaults on the loan. A guaranty reduces the lender's risk, which allows the lender to make loans to business owners who do not qualify for traditional loans.

So, the first place to start looking for a loan is with your local commercial bank or lending institution. The lender will have all the forms you'll need to apply for a government-backed loan, and will work with the government on the application process.

You should also look to your state and local government agencies and local non-profits. Some of these organizations make loans directly to businesses, which means you won't need to go through a bank.

Applying for a Loan

There are hundreds of government loans available for small businesses. Each loan program has unique application and eligibility requirements, however, most lenders ask for the same information for you. Before you apply for a loan, you should get some basic documentation together that will go into just about any loan package.

  • Business Loan Checklist

    SBA is not the only source for small business loans. State and local economic development agencies and numerous non-profit organizations provide low-interest loans to small business owners who may not qualify for traditional commercial loans.

    While every loan program has specific forms you need to fill out and documents you need to submit, you will likely need to submit the same information for different loan packages.

    Before you start applying for loans, you should get some basic documentation together. The following are typical items for any small business loan application:

    1. Loan Application Form

    2. Forms vary by program and lending institution, but they all ask for the same information. You should be prepared to answer the following questions. Itís a good idea to have this information prepared before you fill out the application:

      • Why are you applying for this loan?
      • How will the loan proceeds be used?
      • What assets need to be purchased, and who are your suppliers?
      • What other business debt do you have, and who are your creditors?
      • Who are the members of your management team?
    3. Personal Background

      Either as part of the loan application or as a separate document, you will likely need to provide some personal background information, including previous addresses, names used, criminal record, educational background, etc.

    4. Resumes

      Some lenders require evidence of management or business experience, particularly for loans that can be used to start a new business.

    5. Business Plan

      All loan programs require a sound business plan to be submitted with the loan application. The business plan should include a complete set of projected financial statements, including profit and loss, cash flow and balance sheet.

      Here are some resources for preparing your business plan:

    6. Personal Credit Report

      Your lender will obtain your personal credit report as part of the application process. However, you should obtain a credit report from all three major consumer credit rating agencies before submitting a loan application to the lender. Inaccuracies and blemishes on your credit report can hurt your chances of getting a loan approved. Itís critical you try to clear these up before beginning the application process.

    7. Business Credit Report

      If you are already in business, you should be prepared to submit a credit report for your business. As with the personal credit report, it is important to review your businessí credit report before beginning the application process.

    8. Income Tax Returns

      Most loan programs require applicants to submit personal and business income tax returns for the previous 3 years.

    9. Financial Statements

      Many loan programs require owners with more than a 20% stake in your business to submit signed personal financial statements.

      You may also be required to provide projected financial statements either as part of, or separate from your business plan. It is a good idea to have these prepared and ready in case a program for which you are applying requires these documents to be submitted individuall.

      The following forms may be used to prepare your projected financial statements:

    10. Bank Statements

      Many loan programs require one year of personal and business bank statements to be submitted as part of a loan package.

    11. Accounts Receivable and Accounts Payable

      Most loan programs require details of a businessí most current financial position. Before you begin the loan application process, make sure you have accounts receivable and accounts payable.

    12. Collateral

      Collateral requirements vary greatly. Some loan programs do not require collateral. Loans involving higher risk factors for default require substantial collateral. Strong business plans and financial statements can help you avoid putting up collateral. In any case, it is a good idea to prepare a collateral document that describes cost/value of personal or business property that will be used to secure a loan.

    13. Legal Documents

      Depending on a loanís specific requirements, your lender may require you to submit one or more legal documents. Make sure you have the following items in order, if applicable:

      • Business licenses and registrations required for you to conduct business
      • Articles of Incorporation
      • Copies of contracts you have with any third parties
      • Franchise agreements
      • Commercial leases
    14. Organizing Your Documents

      Keeping good records is essential for running a successful business, but even especially critical when applying for a loan. Make sure required documents are orderly and accurate. All information you provide will be verified by your lender and the organization guaranteeing the loan. False or misleading information will result in your loan being denied. Finally, make sure you keep personal copies of all loan packages.

    15. More Information

      If you plan on applying for an SBA loan, check out the SBA Loan Application Checklist for specific requirements.

      Visit the Finance, Money & Taxes Community Forum to get answers to your questions, and discuss financing issues with other small business owners and industry experts.

  • SBA Loan Application Checklist

The following forms and documents are required when applying for a loan that is guaranteed by the U.S. Small Business Administration.

SBA does not provide direct loans. You will need to contact your local bank or lending institution to obtain an SBA loan. Your lender will submit your loan package to SBA.

You and your lender should review this checklist to ensure all documentation is included.

    1. SBA Loan Application

    Application for Business Loan - SBA Form 4
    This form should be completed by you, the business owner.

    Lenders Application for Guaranty or Participation - SBA Form 4i
    This form should be completed by your lending institution.

    2. Personal Background

    Statement of Personal History - SBA Form 912

    3. Personal Financial Statement

    Personal Financial Statement - SBA form 413

    4. Business Financial Statements

    Detailed, signed Balance Sheet and Profit & Loss. Statements current (within 90 days of application) and last three (3) fiscal years Supplementary Schedules required on Current Financial Statements.

    5. Projected Financial Statements

    Detailed one (1) year projection of Income & Finances (please attach written explanation as to how you expect to achieve same).

    6. Ownership and Affiliations

    A list of names and addresses of any subsidiaries and affiliates, including concerns in which the applicant holds a controlling (but not necessarily a majority) interest and other concerns that may be affiliated by stock ownership, franchise, proposed merger or otherwise with the applicant.

    7. Business Certificate / License

    Certificate of Doing Business (If a corporation, stamp corporate seal on SBA Form 4 section 12).

    8. Loan Application History

    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.

    A company must be independently owned and operated, not dominant in its field and must meet certain standards of size in terms of employees or annual receipts. Loans cannot b made to speculative businesses, newspapers, or businesses engaged in gambling.

    Applicants for loans must also agree to comply with SBA regulation that there will be no discrimination in employment or services to the public, based on race, color, religion, national origin, sex or marital status.

    9. Business Income Tax Returns

    Signed Business Federal Income Tax Returns for previous three (3) year.

    10. Personal Tax Returns

    Signed Personal Federal Income Tax Returns of principals for previous three (3) years.

    11. Resumes

    Personal Resume including business experience of each principal.

    12. Business Overview and History

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

    13. Business Lease

    Copy of Business Lease (or note from landlord) giving terms of proposed lease.

    14. For purchasing an existing business:

    a. Current Balance Sheet and Profit & Loss Statement of business to be purchased.
    b. Previous two (2) years Federal Income Tax Returns of the business.
    c. Propose Bill of Sale Including: Terms of Sale.
    d. Asking Price with schedule of:

      1. Inventory
      2. Machinery & Equipment
      3. Furniture & Fixtures

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