Get Funded with SBA 7a Loans

This is the 4th installment of my series on getting a commercial loan. In my previous article, I mentioned briefly that, instead of a traditional commercial loan, I got a SBA 7(a) Loan. This article goes into more details. It’s long. Sorry, not sorry.?

While I was preparing to write this, I noticed a LOT of people have been talking about SBA 7(a) Loans, like the SBA is passing out loans like cake at a party. There are people marketing the SBA 7(a) loan as if it’s the next round of PPP loans. It is NOT.?

What is a SBA 7(a) Loan?

The SBA 7(a) Loan Program is the SBA’s primary business loan program. It offers a 25 year loan on commercial properties. These loans are limited to $5 million. The SBA has a loan matching feature, which connects you with banks that participate in the SBA lending program. My loan was handled through a smaller regional bank. When choosing a lender, you want to choose someone familiar with the SBA in order for it to be a slightly less painful process.?

Qualifying for a SBA 7(a) Loan

To be eligible for a 7(a) loan, a business must:

• Be an operating business
• Operate for profit
• Be located in the U.S.
• Be small under SBA Size Requirements (see the SBA website)
• Not be a type of ineligible business (see the SBA website)
• Not be able to obtain the desired credit on reasonable terms from non-Federal, non-State, and non-local government sources
• Be creditworthy and demonstrate a reasonable ability to repay the loan

To be clear, the SBA 7(a) business loan is different from the 7(a) Working Capital Pilot (WCP) program. The SBA 7(a) WCP is under the 7(a) loan umbrella.?

Documents required for SBA 7(a) loan

In addition to the laundry list of documents listed in my article ‘Documentation Required’, here is a list of the information the SBA requires:

• SBA Form 1919 - This form collects basic information about the business applying for the loan, including its structure and ownership. This form is required for all borrowers and co-borrowers. If, for instance, you have a real estate holding company, you would present a SBA Form 1919 for your company applying for the loan, and the holding company as a co-borrower.
• Business Financial Statements - This includes profit and loss statements, balance sheets, cash flow statements, accounts payable and accounts receivable statements.
• Business Plan - Do not pay thousands of dollars to have someone help you create a business plan. The SBA offers a business plan template. Your business plan will provide an outline of the company's operations, and market analysis. Review the SBAs examples for what to include in the business plan. Again, you do NOT need to pay someone thousands of dollars to create your business plan. An honest imperfect business plan is better than a pretty lie.
• Financial projections - I had to call for help to get this done. If you have structured bookkeeping already, this is a little easier, as you have historical data on which to base your projections. Be honest in your financial projections. If you have times where you have lower revenue, state that and explain why it happens. In retail for example, the 4th quarter is typically a high revenue time, where the first quarter is typically a lower revenue time. Be prepared to explain those financial fluctuations. Typically, you will be required to provide 2-3 years of rolling projections. The financial projections will start from the time you receive the loan, not a calendar year projection.?
• Business Documentation - Business licenses, state registrations, and operating agreements(even if you are a single member LLC).
• Debt schedule - This lists all loans, the dates incurred, the monthly payment, the current balance, and when the loan is scheduled to be paid off.
• Personal bio for all borrowers and co-borrowers - This details the life and professional experience of the borrower(s). List any skills that will assist you in being successful in your endeavor.

“If applicable” documentation

This is documentation that may be required depending on the type of loan you have.?

• Collateral Documentation - Your loan may require collateral. You have to provide documentation of ownership. If your collateral is co-owned with a spouse, your spouse will also have to sign the loan documents.?
• Supporting Documents - Because I formed an LLC holding company for my property, I had to provide a lease agreement between the holding company and my tax company.?

The SBA 7(a) Loan program is a great way to secure funding when traditional loans aren’t feasible. Start preparing early so that when it’s go-time, you have all the documentation you need. In my case, I had a lot of the documents, but I had never actually documented projections 2-3 years out.?

Note: If you get a SBA 7(a) loan to secure commercial property, you must occupy at least 51% of the property. This is not a loan for purely investing or flipping properties.

That was two long articles in a row, the next one will be provide the step by step process to obtaining a commercial loan.

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LuSundra Everett, EA is the Home Biz Tax Lady, owner of Everett Tax Solutions, and ETS Tax Relief. LuSundra is passionate about educating taxpayers about tax law in an easily digestible manner. LuSundra is a huge proponent of tax education and offers training to other Tax Professionals to help them stay on the cutting edge of tax law and new developments. If you need assistance with an IRS or state tax issue, contact ETS Tax Relief here.