Every loan application requires borrowers to provide a substantial amount of information about the business and its owners. When applying for a loan that is guaranteed by the U.S. Small Business Administration (SBA), you can also expect to be required to provide additional documentation to confirm compliance with SBA specific rules and regulations. You can ensure that your loan process goes smoothly by confirming that you are providing the right documentation. Here is a simple breakdown of what the Lender's counsel is looking for when reviewing corporate and purchase documentation:
- Organizational Documentation: You will be required to provide copies of your company's articles of incorporation and bylaws (for a corporation) or articles of organization and operating agreement (for a limited liability company). These documents evidence the establishment of your company's legal existence and detail the management structure and ownership. When preparing this documentation, please make sure that the entity's name, management style (member versus manager-managed for a limited liability company), and state of registration are consistent across all documentation.
- Ownership Information: While lenders can (and sometimes do) require additional guarantors, SBA rules require each owner of 20% or more of an applicant for an SBA guaranteed loan to provide a full unconditional guaranty of the loan. Documentation must be provided to clearly show who all the owners are and an easy way to determine their ownership percentages. For a limited liability company, an operating agreement will need to be provided that identifies all members together with their ownership interest in the entity. For a corporation, the borrowers will need to provide copies of the resolutions appointing the officers and directors along with copies of all stock certificates and the stock ledger so that ownership percentages can be determined.
- Purchase Documentation: Lenders will require a purchase agreement clearly detailing all terms of each acquisition. When multiple transactions are being financed, for example, a purchase of commercial real estate together with a stock purchase or an asset purchase, it is often best to document each transaction in a separate agreement. That can help avoid the need for substantial drafting clarification with respect to who is selling or buying what, among other things. It is also best to provide drafts of the purchase agreement(s) prior to execution so that any lender concerns and/or SBA requirements do not require amendments. It is often easier to get the lender's required modifications included before the parties believe the purchase agreement is “final.”
Please be aware that different types of transactions will require different types of ancillary documentation. Asset purchases require an asset purchase agreement and a bill of sale. Stock purchases do not require a bill of sale, but copies of pre- and post-close stock certificates and stock ledgers, stock powers, resignation letters for each of the pre-closing officers and directors, pre-close resolutions approving the sale (from the seller(s)) and post-close resolutions (from the buyer(s)) appointing the new officers and directors will be required with the stock purchase agreement. Purchases of commercial real estate require a purchase agreement and warranty deed (but keep in mind that there will likely also be additional title specific documentation required by the title company).
It is important to keep in mind that certain of the SBA required documentation is very time-sensitive and non-negotiable. For example, lenders are required to have borrowers complete an SBA Form 1919 and then submit the document to the SBA in order to get the authority to proceed with closing the SBA guaranteed loan. By preparing these documents in advance and ensuring that they are complete and accurate, you can avoid unneeded delays in the closing process and demonstrate to the lender and its counsel that you are ready to move forward with closing your SBA guaranteed loan.
