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Who Has to Provide Personal Information When Applying For an SBA Loan

Lending has evolved over the past decade. The unfortunate actions of a few have led to increased regulations and, as a result, an increase in the amount of information that has to be gathered and vetted during the loan process. Of course, due diligence is a critical component of sound lending practices and although it can at times seem cumbersome, the extra effort on the front end creates a better loan arrangement for all parties and ensures the integrity of the transaction. Still, many are surprised by how much personal information is required during a business loan process and by whom, particularly when seeking an SBA guaranty loan.

Essentially anyone who has a financial interest in the company and upon whom the financial prosperity and integrity of the business rests is subject to scrutiny during the SBA loan process. How they are evaluated and what they have to provide can vary, but for the most part individuals fall into one of two categories: owners and key managers. Each of those categories have different requirements; however, every loan is evaluated on a case by case basis and some persons may be required to provide more information than we describe below. Still, this will serve as a good starting point for your firm.

Owners with 20% or More Interest

Many financial advising firms have silent and minority business partners who are not always involved in the financial and borrowing aspects of a business. However, the SBA has strict rules about which owners have to provide personal financial information. All owners with 20% or more interest in the company must provide three years worth of personal tax returns and complete a background check. All of the tax returns are verified with the IRS.  Those owners are also subject to the personal liquidity rule which may impact the down payment. If they have a key management role, they may also be required to submit a resume.

Key Managers

Managing partners and those holding other critical important positions but are not owners are often required to submit a 1919 form authorizing a background check. The purpose is to ensure that someone with a questionable history, particularly one who has embezzled or committed fraud, is not in a position to mismanage company finances. They are also required to provide a resume, with the purpose of validating experience and competency serving in a similar role, as this is a key indicator of the strength of the business.

As mentioned in our post on “Biggest Mistakes Business Owners Make During the Loan Process,” not providing complete and timely information is one of the biggest things that delays or even stops the loan process. Prepare your co-owners and key staff early, and ensure that they have and are willing to submit all necessary documents to ensure a quick and painless loan process. If you’re not sure if any of your team or co-owners are subject to the rules, you can always contact us and we can help guide you on who will need to be involved and how to prepare them for the process.