The United States Small Business Association (SBA) is a federal government agency devoted to supporting small business owners and entrepreneurs. The SBA offers many programs, including some that offer loans with terms favorable to small businesses. Any time you sign a contract, including a loan agreement, we strongly urge you to have your business lawyer review the document first. Having a business lawyer review your SBA loan agreement is a great idea also.
But why? Aren’t these documents designed to be understood by any borrower?
Loan Documents Can Be Confusing
SBA loan agreements – like other loan documents – contain a number of provisions and “fine print.” It can be challenging to understand the terms on their face. Calculating future consequences is even more difficult.
Even choosing the right kind of loan could be challenging. SBA-guaranteed loans include:
- 7(a) loans – These loans offer benefits to borrowers like guaranteeing some of the total amount, capping interest rates, and limiting fees.
- 504 loans – This long-term, fixed-rate package can allow qualified borrowers to buy or repair assets like real estate, equipment, and machinery.
- Microloans – Small businesses sometimes just need small loans. The microloan programs offers up to $50,000 to help companies like yours with start-up and expansion.
Your business lawyer can review your SBA loan agreement, looking for specific terms that may not be to your advantage. For example, the SBA might require certain actions from borrowers, like submitting certain types of business documents and meeting strict deadlines.
Completing Applications Is Time Consuming
Once the SBA requirements become apparent, you will need to gather information and, usually, documentation. All that takes time away from your business. Depending on your unique situation, you might free up time to work on marketing, business planning, or expansion while letting your business lawyer handle your SBA loan agreement.
For example, let’s look at the 7(a) loan program where you will use the money to start a business or expand your current business. Your loan package includes:
- SBA Form 1919 (borrower information form
- SBA Form 912 (statement of personal history) and SBA Form 412 (personal financial statement)
- Profit and loss statement and projected financial statements
- A list of ownership and affiliations
- Copies of any business licenses or certificates, income tax returns (personal and business)
- Your loan application history
- Resumes for each of your company’s principals
- A history of your business, its history and challenges, and an explanation of why an SBA loan will help your company
- Copies of any business leases.
If you plan to buy an existing business, you will need additional documents about the company you plan to buy with your SBA funds.
Questions About Your SBA Loan Agreement May Be Difficult to Answer
The SBA has an extensive website. Loan documents typically include information and instructions.
But finding exactly what you need can take time. You may find yourself calling the SBA to track down the answers you need.
Here, again, your business lawyer can take some of the burden. They might already know the answers to your questions or may be able to find them while you go back to operating your company.
Your SBA Loan Agreement Is Too Important to Rush Through
Sometimes your company might need funds due to an emergency. It’s tempting to just get the money without considering the cost. However, any legal document should be reviewed before signing it. Seemingly innocent language could cause serious consequences for you and your business. A business lawyer can explain what confusing loan terms mean and help you avoid pitfalls.
Attorney Richard Sierra at the Florida Small Business Center assists clients like you with business and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.