What You Need to Have When Applying for an SBA Business Acquisition Loan

14 Jan

What You Need to Have When Applying for an SBA Business Acquisition Loan

As a busy owner of a financial advising firm, it is a constant challenge juggling the tasks necessary to run the business with those that also help to grow the business. Applying for an SBA business acquisition loan is no exception. Getting through the loan process quickly and easily is possible with preparation. To help, we’ve outlined in this post a few key things you should have ready to submit with your SBA business Acquisition loan application.

Tax Returns

The SBA requires that we provide the three most recent years of tax returns for the business as well as for any owners of the acquiring company who hold a 20% or more interest. All tax returns are verified with the IRS and any discrepancies must be addressed. If the loan process is taking place during a filing period, it may be necessary to complete your IRS tax returns before the loan process can be complete, unless you file for an extension. In which case, the three prior years must be submitted along with proof of an extension for the current year.

Financial Statements

Complete current financial statements for both businesses are required. This includes a profit and loss statement, balance sheet, and three months of bank statements. Additionally, owners subject to the personal liquidity rule may also be required to submit additional personal financial documents. All financial reports must be dated within 90 days of the date the loan is submitted and closed. If the loan process is delayed for any reason, new documents may be requested prior to closing.

Business Plan

A brief business plan is required to help support the development of the credit memo narrative. The business plan does not need to be long but should include: description of the business, how the business operates, market analysis and market plan, acquisition plan, and resumes of key employees and owners. It should also include projections of expenses and revenue post-acquisition.

Business Formation Documents

Both businesses will need to provide their business formation documents including DBA, articles of incorporation, ownership agreements, and any other relevant data. If there is a board of directors, the most recent meeting minutes may also be required.

Credit History Explanations

For any owners with 20% or more interest and both businesses, a credit check is done. If there are any red flag items, an explanation of the item will need to be submitted. Often these are sufficient enough to proceed with the loan, however, in some cases, additional documentation such as receipts and correspondence supporting the explanation may be required.

Current Liens on Business to be Purchased

Any current liens on the business to be acquired and any other collateral provided must be submitted. This is necessary for both the bank and the SBA to determine lien position on collateral provided during the loan process. In certain cases, some liens may need to be cleared before a loan can be processed. This is a key factor in mitigating lending risk for the bank and the SBA, which must serve as sound stewards of this government loan program.

During the process, we will also ask for other items relevant to your specific situation including a business valuation. The SBA has strict guidelines on what is considered a viable business valuation, and we will discuss this in further detail in our next post. Just know that a formal valuation from a qualified third party is required and is often secured by the bank from a list of pre-vetted vendors. Other potential items we might request include background checks on key employees. Your SaltCreek loan advisor can provide further detail and support on what to expect so you can begin preparing for the loan process.


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