Documents Needed For An SBA Loan To Buy A Business

How The Document List Works

Most buyers expect the lender to want their own financial records. They are often surprised that the largest part of the file comes from the seller. That is because the lender is underwriting the business you are buying: its cash flow repays the loan.

The documents fall into four groups:

1. Seller documents that prove the business's history and earnings
2. Buyer documents that show who you are, what you own and where your Down Payment comes from
3. Deal documents that set the terms, from the letter of intent to the purchase agreement
4. SBA and lender forms that you sign during the application and at closing

On top of that, the lender orders a few reports itself. We list those at the end.

Documents From The Seller

Ask the seller or their broker for these as soon as the letter of intent is signed. Many are in the confidential information memorandum already, but lenders need complete copies.

• Business tax returns for the last three years, with all schedules
• Year-end profit and loss statements and balance sheets for the last three years
• A year-to-date profit and loss statement and balance sheet, plus the same period from last year
• A detailed schedule of business debt
• A list of the assets being sold: equipment, vehicles, inventory
• The current lease, and the landlord's contact for consent to assignment
• A list of add-backs the seller claims, with support for each
• Accounts receivable and payable agings
• Payroll reports, and an organization chart with key employees
• Bank statements, often 12 to 24 months, especially if a Quality of Earnings report is needed
• Franchise agreement and franchise disclosure document, if it is a franchise

SBA requires the seller's financial statements to be dated and signed or certified by the seller. If the seller does not have financial statements, the seller must provide another way to verify revenue, and the lender must explain how it checked the numbers. The lender also verifies the seller's returns against IRS transcripts, which is why the seller signs an IRS form authorizing the lender to pull them.

Documents From You

Your side of the file is about experience, finances and the Down Payment:

• A resume focused on management and industry experience
• Personal tax returns for the last three years
• A personal financial statement, on SBA Form 413 or the lender's version
• Bank and investment statements showing your Down Payment, covering at least 30 days
• A gift letter and the donor's statement, if any of the money is a gift
• Retirement plan statements, if you are using a 401(k) or ROBS plan
• A household budget showing your living expenses and personal debts
• Proof of U.S. citizenship or U.S. national status, such as a passport
• Formation documents for your buying company: articles, operating agreement and EIN
• A business plan with your transition plan and projections
• Written explanations of anything unusual in your credit or history

Every owner of 20% or more, and every guarantor, completes the personal financial statement, and the lender pulls each person's credit report. A spouse's assets are included on the statement. If you are buying with partners, each partner provides their own set. Our guide to what SBA lenders look for in a buyer explains how these documents are read.

Deal Documents

These set the terms of the purchase and change as the deal moves forward:

• Letter of intent. The signed LOI starts the process. See the business acquisition letter of intent.
• Purchase agreement. The asset or stock purchase agreement, with all schedules and amendments. SBA requires the lender's file to include every related agreement.
• Seller note and standby agreement. If the seller carries a note on full standby, the seller signs SBA Form 155 or the lender's equivalent, with the note attached. See seller notes on full standby.
• Consulting agreement with the seller, if they will help with the transition. It can run up to 24 months in total.
• Lease assignment or new lease, signed by the landlord.
• Franchisor approval of the transfer, for a franchise.
• Real estate purchase agreement, if the building is included.

SBA Forms You Will Sign

At closing you also certify, among other things, that nothing has materially changed in the business since you applied and that the business is current on its taxes.

How Recent Documents Must Be

Many items expire. SBA sets limits for when the lender submits the loan to SBA:

• Personal financial statements: dated within 90 days
• Business financial statements, including the seller's interim statements: within 120 days
• Seller's year-end statements: dated and signed or certified within 120 days

What The Lender Gets On Its Own

You do not have to gather these, though you may pay for some of them:

• The independent business valuation, prepared for the lender
• A Quality of Earnings report, when the business purchase price is $3,000,000 or more
• IRS tax transcripts for the seller's business
• Credit reports for each owner and guarantor
• A site visit to the business
• A real estate appraisal and environmental review, if real estate is included
• Lien and judgment searches

The cost of the valuation and QoE can be financed in the loan, and anything you pay toward them counts toward your Down Payment.

Where The Documents Go Next

Once the file is complete, the lender underwrites the loan and the SBA loan approval process begins. Working through your due diligence checklist at the same time saves asking the seller for things twice. Before any of this, a pre-qualification letter tells you whether the deal is worth collecting documents for. See the SBA business acquisition loan page for how the loan works.