Business loan documents checklist: what to gather and what to read before you sign

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• Gather the core financial documents first
• Tax documents must agree with your financial statements
• Paying someone to assemble the file has a ceiling
• Documents you receive and sign at closing
• Disclosures and notices you can expect
• Questions to ask before you hand anything over

Gather the core financial documents first

Lenders decide from your numbers, so start with the financial file. SBA's list for 7(a) loans is a good model even if you apply elsewhere. Lenders can ask for more, and requests vary by lender. Source: SOP 50 10 8.1, Appendix 20, Para. A.1.

• Tax returns or statements. Business financial statements or tax returns for the last 3 years.
• Year-end statements. Balance sheets, with a detailed debt schedule, and profit and loss statements for the last 3 years.
• Interim statements. An interim balance sheet and profit and loss statement, dated within 120 days of submission to SBA.
• A debt schedule. List every business debt with its lender, balance, payment, rate, maturity and collateral. Include merchant cash advances and shareholder loans.
• Personal financial statements. Each owner of 20% or more and each proposed guarantor completes SBA Form 413 or the lender's form, dated within 90 days. An owner's statement includes the assets of a spouse and minor children. SBA excepts guarantors a lender adds only out of caution.
• Ownership details. SBA Form 1919 asks for each owner of 20% or more and the people behind any owning entity.

Add what fits your deal.

• A lease, if you rent.
• Equipment quotes, a list of assets you will buy and a list of all collateral.
• Franchise agreements, if you operate under one.
• For real estate: an appraisal, a signed purchase agreement and a cost breakdown for improvements.
• For buying a business: the purchase agreement, a business valuation and the seller's financial statements.
• For a refinance: copies of the notes and security agreements, and 12 months of transcripts showing the debt is current.
• For a start-up: detailed projections and their assumptions.

Tax documents must agree with your financial statements

SBA checks that you filed your business tax returns and that your financial statements match them. If you have not filed required federal returns, you are not eligible (SOP, Sec. A, Ch. 5, Para. B.2). Except on SBA Express and Export Express, the lender must obtain IRS tax transcripts and reconcile differences before the first disbursement. On those two programs, the lender may disburse first but must verify the data afterward.

You sign IRS Form 4506-C or Form 8821 so the lender can request transcripts. SBA does not let you or your tax preparer file Form 8821 for an SBA loan. If the IRS has no record of a return, the lender cannot disburse until the issue is resolved. The exception needs proof of filing and proof of payment or refund.

Reconcile before you apply. Suppose your internal profit and loss shows $410,000 of revenue and your return shows $386,000. The $24,000 gap needs a written explanation before the lender can reconcile it. Bring that explanation with the documents.

Paying someone to assemble the file has a ceiling

You can prepare the file yourself. If the lender or a packager helps, SBA limits the charge. A lender may charge a flat fee of up to $2,500 without documenting the service. Above that, the lender must complete SBA Form 159. A fee based on a percentage of the loan must also stay within caps. Those caps are no more than 5% on loans of $150,000 or less and 3% on larger loans, up to $30,000. It cannot exceed what the lender charges on similar non-SBA loans. An hourly fee must be reasonable and customary (SOP, Sec. A, Ch. 4, Para. C.2).

For a $120,000 loan, the 5% cap is $6,000. For a $400,000 loan, the 3% cap is $12,000. Compare those figures with the flat $2,500, and ask what work the fee covers. An outside agent has separate caps, and any agent fee above $2,500 must be supported by documentation (Para. D.7).

Documents you receive and sign at closing

The closing set is where terms become binding. Ask for copies early and read each one.

• The note sets the amount, rate, payment schedule, fees and default terms.
• The security agreement lists your collateral. Check whether it covers assets you buy later.
• The UCC financing statement is filed in your name with the state. Our UCC guide explains it.
• Guarantees. Read who signs, the scope and any cap. Our guarantees guide covers them.
• The closing statement shows what you pay and what is financed. On 7(a) loans, the lender may not charge you commitment, origination, broker, referral and similar fees, points, prepayment fees and renewal fees. Check yours against that list.

SBA allows one prepayment charge, and it goes to SBA, not the lender. It applies to loans with a maturity of 15 years or more. It is due when you prepay more than 25% of the highest balance in one of the first three years. The fee is 5%, 3% and 1% of the prepaid amount in years one, two and three (SOP, Sec. A, Ch. 4, Para. C.3).

If anything is unclear, ask for the answer in writing, as the FTC advises. Do not rely on a verbal promise. Form 148 says you may not use an oral statement to contradict its written terms (para. 9.H).

Disclosures and notices you can expect

Some states require standardized disclosures before you accept certain commercial financing. New York's Commercial Finance Disclosure Law applies to certain providers of commercial financing up to $2,500,000. Its regulation sets how finance charges and annual percentage rates are calculated. It requires disclosures when offers are extended. Your state may have a similar rule, so ask the provider whether a disclosure applies. Source: New York Department of Financial Services, February 1, 2023.

If a lender turns you down, federal rules require notice and give you a right to ask for the reasons. Our guide to denials covers the deadlines.

Questions to ask before you hand anything over

• Which documents do you need now, and which only at closing?
• Will you pull my personal credit, and when?
• Who receives my tax information, and for what purpose?
• What is the full list of fees, and which are paid to SBA?
• Can I see the note, security agreement and guarantee now?
• What happens to my documents if I do not go ahead?

Get the answers in writing. The FTC also advises getting an outside opinion from a trusted person who is not tied to the lender before you commit.