Navigating the SBA Loan Process

When it comes to entrepreneurial activity and small business opportunity, Houston is truly booming. Data from the U.S. Small Business Administration (SBA) and its Houston District Office indicate that 2014 was a record breaking year in terms of the dollar amount of small business loans extended. With a total of $688 million in new loans made, those figures represented a growth of 21% in the sheer number of loans as well as an uptick of 5.9% in dollar value over FY 2013.

2015 is also on its way to being an impressive year for SBA lending, as more and more entrepreneurs seek to take full advantage of 7(a) as well as 504 loans to launch, acquire, expand or grow their enterprises. Two of the most popular types of SBA-guaranteed loans, the 7(a) loan is granted for the purpose of starting or purchasing a new business, while a 504 loan is referred to as a “certified development company” loan meant to facilitate the ability of an existing small business to finance key fixed assets including equipment or real estate. These are just two of the programs through which the SBA assists dynamic businessmen and women across the country as they fuel economic recovery and growth, and represent a large portion of the loans currently being made not just in Houston, but across the entire state of Texas. The lending market is competitive, but with the recent growth, Texas SBA lenders can rely on Murray | Lobb to assist them in providing high quality, low cost, efficient services to their SBA clients.

SBA Loan Approval Criteria

For many interested in starting or expanding a small business, an SBA-backed loan is the piece of the puzzle that turns vision into reality. Lenders who participate in these programs understand the critical role they are playing in spurring economic development and continued growth, and employ several categories to help them judge each applicant’s likelihood of success and, of course, repayment. Key factors influencing decisions in the SBA loan application process include:

  • Ratio of entrepreneur’s investment in the business to the requested loan amount
  • Predicted future cash flow
  • Management experience, training and education of the borrower
  • Personal credit history of the primary borrower
  • Collateral, if available

Document-Intensive Application and Loan Closing Process

The data-intensive process involved with securing SBA-guaranteed financing is evidenced by the lengthy list of documents that will often be required for the completion of most loan transactions. Those seeking financing through an SBA participant lender may be asked to execute most, if not all, of the following types of documents:

  • Construction Loan Agreements
  • Construction Deeds of Trust
  • Assignments of Rents
  • Security Agreements (non-real estate business assets)
  • SBA form Loan Agreements
  • SBA form 147 Notes
  • SBA Form 148 Unconditional Guaranties
  • Lender Specific Guaranty Agreements
  • Environmental Indemnity Agreements
  • Mineral Rights Acknowledgments
  • Contractor’s Affidavits
  • Agreements of General Contactors
  • Assignments of Soil Reports, Engineering Reports & Survey
  • Consents to Communicate and Provide Information (for jobbers/franchisors)
  • Waivers of Jury Trial
  • Same Name Affidavits
  • Collateral Protection Insurance Notices
  • Borrower & Guarantor Authorizing Resolutions
  • Borrower’s Affidavits Document Correction Agreements
  • Loan Agreement Notices
  • Patriot Act Disclosures
  • SBA form 601 Agreements of Compliance
  • Borrower’s Certifications (SBA)
  • Settlement Sheets (SBA)
  • Certifications of Compliance with Child Support Obligations for principals of Borrower
  • Acknowledgments of Receipt of SBA EEOC Posters
  • W-9 Statements for Borrower
  • Informational Statements of Legal Counsel

Particularly for those wishing to launch entirely new enterprises, the idea of aggregating such a massive amount of documentation may seem daunting. The detailed, cumbersome nature of the information needed before an SBA-backed loan may be granted can discourage even the most ambitious prospective borrowers. However, with the right help, current and burgeoning small business owners can effectively make their case to lenders and secure the funding they need to thrive.