U.S. Small Business Administration Guaranteed Loans

The SBA also has a number of eligibility rules that apply to specific kinds of businesses. Franchisees, for example, are often favored by the SBA because their businesses enjoy a higher success rate than do other businesses. Nonetheless, SBA officials will examine a franchisee's franchise agreement closely before extending any loan guarantees to him or her. If the officials decide that the franchisor wields so much control over the franchise's operations that the franchisee is basically an employee, then the SBA will turn down the request. Other types of businesses, such as those in agriculture or the fishing industry, are free to apply for SBA assistance, but they are directed to first look to government agencies that deal directly with their industries. Farmers, for example, are supposed to first explore loan programs available through the Farmers Home Administration (FHA), while some members of the fishing industry—depending on the nature of their need—should first consult with the National Marine Fisheries Service (NMFS). The SBA also notes that some businesses are disqualified from consideration from the outset by the industry in which they operate. Businesses that operate in gambling, investment, or media-related fields, for example, are all ineligible for SBA loans.

Finally, the SBA notes that loans that they guarantee are only to be used for specific business purposes, including "the purchase of real estate to house the business operations; construction, renovation, or leasehold improvements; acquisition of furniture, fixtures, machinery, and equipment; purchase of inventory; and working capital." Using the money for other purposes—payment of delinquent withholding taxes, acquisition of another business, refinancing of debt, and a whole host of other actions—is not allowed.

APPLYING FOR AN SBA LOAN

The chief challenge of any business seeking to secure a loan from the Small Business Administration is to convince the SBA that it has the ability to be successful in its chosen field. To do so, the small business owner should be equipped with a complete understanding of his or her operation (whether existing or proposed) and the benefits that a loan, if granted, will bring to the business. Of course, it is also necessary to effectively articulate this information to the SBA. Business owners disseminate this data through a variety of documents.

Principal documents that should be submitted by the entrepreneur who hopes to start a new business include: resume (and resumes of any other key people involved in the proposed enterprise); current financial statement of all personal assets and liabilities; summary of collateral; proposed operating plan; and statement detailing revenue projections. Perhaps the most important document, however, is the loan request statement itself, for it is this document that should detail all aspects of the proposed business. For established business owners seeking an SBA loan, the most important documents—besides the loan application—are the company balance sheet, personal financial statements, and business income statements. Consultants urge small business owners to be both careful and realistic in preparing these records. They also caution entrepreneurs and small business owners not to distort figures or facts in their presentation. The SBA does not look kindly on misrepresentations in financial statements or any other part of the loan application.

The Loan Application

The SBA loan application form serves to summarize much of the information detailed elsewhere in the total application package. Applicants are directed to furnish basic information about themselves and their businesses, including personal information (full legal name, street address); basic business information (employer ID number, type of business, number of employees, banking institution used); names and addresses of management personnel; estimated business expenditures and costs (including details on the SBA loan request); summary of collateral; summary of previous government financing; and listing of debts.

The SBA loan application form also provides a complete listing of the various other items of information that must be provided for a business's application to be considered. These include a personal history statement; personal and business financial statements; business description; listing of management personnel; equipment list; cosigners; summary of bankruptcies, insolvencies, and lawsuits (if any); listing of any familial relationships with SBA employees; subsidiaries, either proposed or in existence; franchise agreements; and statements of financial interest in any establishments with which applicant business does business, if applicable.