When acquiring a business, securing SBA financing can be a critical step. The process can be complex, and both buyers and sellers must be prepared to provide a significant amount of documentation. For buyers, the SBA will require financial, professional, and legal information, while sellers will need to provide detailed records about the target business. In this article, we outline the key documents and forms that both parties should expect to prepare when pursuing an SBA loan.
For Buyers:
- Bank Application, Credit Report Authorization, and Driver’s License – A standard part of the application process.
- SBA Form 1919 – The SBA application form, which must be signed by both you and your spouse if applicable.
- Executed Purchase Agreement or LOI – Proof of a deal being under contract.
- SBA Form 413 – Personal Financial Statement, to be signed by both you and your spouse.
- Resume and Business Plan – A concise plan highlighting your experience and how you plan to run the acquired business.
- Professional Disclaimer and Attestation – A formal statement affirming the accuracy of the provided information.
- Use of Proceeds Statement – Details on how the loan funds will be allocated.
- Three-Year Financial Projections for the Target Business – Projected profit and loss statements to show business viability.
- Copy of Recent W-2s or 1099s – Verification of your personal income.
- Proof of Funds for Down Payment – Typically more than 10% of the transaction value.
- Explanation of Negative Credit Items – If applicable, explanations for any derogatory marks on your credit report.
For Sellers (Target Business):
- Last 3 Years of Business Tax Returns – Essential for verifying historical business performance.
- Last 3 Years of Internal Financial Statements – Income Statement and Balance Sheet to provide a detailed financial snapshot.
- Current Year-to-Date Financial Statements – Ongoing performance must be documented.
- Month-to-Month Gross Sales Reports – Breakdown of sales trends over time.
- Asset List with Values – For assets valued at $5,000 or more, include VIN or serial numbers.
- SBA Form 2202 – List of business liabilities and debts.
- Copy of Lease – Information on the current lease, a crucial part of many transactions.
- Accounts Receivable (30-60-90 days) – Who owes the business money.
- Accounts Payable (30-60-90 days) – Who the business owes money to.
- Copy of Business Insurance Policy – Proof of insurance coverage.
- PPP or EIDL Loan Documentation – Information on pandemic-related financial assistance.
- Vehicle Titles – Proof of ownership for business-owned vehicles.
Both buyers and sellers play critical roles in the SBA lending process, and being prepared with the required documentation will ensure a smoother transaction. Buyers, with a solid business plan and financial history in hand, can increase their chances of loan approval. Sellers, by providing clear and organized financial records, help facilitate the sale and create confidence for the buyer and the SBA. Working closely with experienced advisors like EDGE Business Advisors can further streamline this complex process, bringing you closer to a successful acquisition or sale.