If you are among the many entrepreneurs using a Small Business Administration (SBA) loan to fund your business, you are already familiar with the loan approval process. Getting your loan approved is a great first step, but getting your funding in hand requires a successful loan closing. Make sure you understand what is required to close/fund the loan early in the process. By Sherri Seiber
If you are among the many entrepreneurs using a Small Business Administration (SBA) loan to fund your business, you are already familiar with the loan approval process. Getting your loan approved is a great first step, but getting your funding in hand requires a successful loan closing. Make sure you understand what is required to close/fund the loan early in the process. Closing may be derailed if you are not prepared.
Your lender will provide you with a closing checklist based on their requirements. Each lender has a unique list, but the following things are usually included:
- Fully executed Franchise Agreement and SBA Addendum to Franchise Agreement (if applicable)
- Organizational documents for operating entity
- Fully executed lease agreement
- Fully executed Landlord Subordination Agreement
- Fixed price construction contract (if applicable)
- Equipment invoice (if applicable)
- Certificates of required business insurance
- Life insurance in the amount of the loan (if required)
- Proof of equity injection
- Any licenses/permits required by the State
- If buildout is involved, a Certificate of Occupancy
- Training certificate of completion
Once you have completed all of the closing checklist requirements, the disbursement of funds typically takes between one to three business days.
You might have buildout involved in your loan. Buildouts are improvements to your leased business space. If that is the case, your loan disbursement will go to your general contractor. If buildout is not involved in your loan, your lender will usually require invoices to directly pay your vendors for major costs. Once those costs are paid, the remaining loan balance is usually wired to your business account, where it can then be used as operating working capital. For small and express loans, one lump sum is typically disbursed to your business bank account.
This might seem like a lot! That is why it is critical to be prepared for these steps. Obtaining approval for your SBA loan is a great start, but your loan process is not over until you have closed and have your money in hand.
-By Sherri Seiber
Sherri Seiber is the Chief Operating Officer for FranFund. She and her team are passionate about designing flexible funding plans that help new and experienced business owners fund their franchises, from single units through multi-unit expansions. For more information, contact Sherri at firstname.lastname@example.org or visit franfund.com.