Small business loans enable start-up entities to begin operations and existing businesses to expand. Loan underwriting requirements vary among financial institutions, but the general guidelines are largely similar. The federally backed Small Business Administration guarantees loans for businesses that are unable to meet banks' general lending standards. However, before applying for an SBA loan, a business must first apply for a standard bank business loan.
Business Owner Information
Anyone with at least a 20-percent ownership stake in a business must act as a guarantor when the entity applies for a loan. Lenders require guarantors to meet minimum credit score standards, although minimums vary from bank to bank. Banks normally require two years of tax returns for each guarantor. Underwriters expect the tax returns to show a steady income pattern, and do not normally accept applications from businesses that have been in existence for less than two years because the owners have no income history with the entity. Every owner must also provide the bank with his name, address, Social Security number and date of birth.
Business Entity Information
Lenders require business documents that show the entity has been registered in the state where it operates. These documents are specific to the type of entity, but may include articles of incorporation, a general partnership agreement, a business license or a fictitious name certificate. The lenders also require the entity's tax identification number, physical address and two years of tax returns. Banks check the credit of business entities as well as the credit scores of all of the guarantors.
Cash Flow
Every guarantor must produce a personal financial statement that lists all of her assets and liabilities. Banks do not want to approve loans if the guarantors already have more debt than they can afford. The business owners must also provide the bank with a cash flow analysis for the business. This normally shows the overall financial performance of the entity on an annual or quarterly basis. Lenders may request an income statement, a balance sheet and copies of recent bank or brokerage statements to demonstrate the financial strength of the business.
Small Business Administration
Businesses that are turned down by lenders can apply for SBA-backed loans. The SBA requires the same information as the lender, but also requires a detailed business plan for start-up entities. The SBA also requires resumes from each owner to ensure the guarantors have the requisite skills needed to handle the enterprise. If approved by the SBA, the borrower can re-apply for a loan through the bank because the SBA will guarantee the loans and assume the risk of borrower default.
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