How to Prepare Your Financials For an SBA Loan

How to Prepare Your Financials for An SBA Loan
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Karine Woodman
CEO

Right now, with all the different funding options available with SBA Loans due to Coronavirus, construction businesses are trying to get their information in order to successfully apply. This article discusses what you need to get together and some information on how to find the different SBA relief loan options to apply during this crisis period. Using this article can help you get prepared to answer all the questions that your loan officer may ask you.

What Financial Documents Are Needed From My Construction Business?

In order to apply for any of the emergency funding programs the government is currently offering small businesses affected by COVID-19, your lender might need to evaluate the risk of giving you a loan. In order to do this, they may require the last 2 years of tax returns. These filings are reported, and are considered factual, since they were submitted to the IRS.

If you did not file the most recent (previous year), and it’s a few months into the new year, you can then provide financial reports from your accounting software, like QuickBooks. The information in your accounting software is only as good as what you entered throughout your bookkeeping process. You must make sure that you’ve reconciled all the accounts to verify it’s accuracy. You will also need to provide a profit & loss statement and balance sheet for your construction business. They also may request an accounts payable and accounts receivable report also. You should provide all the statements for last year (if haven’t filed return yet) and this year, through 1st quarter 2020 if you can.

What Construction Business Owner Personal Data Is Needed?

With most construction loans, you have to provide personal information as a business owner to be considered for a loan. This is pretty normal because banks want to know they can trust you. Your loan officer will likely require you to gather all the information necessary to create a personal financial statement.

Some loans may require a personal guarantee and some might not. This means that you, personally, will promise to repay the loan amount if your business cannot. If you need to go through your banker or bank institution, they may require a personal statement as well as the Small Business Administration.

You can request this type of document from your lender directly, as there is likely a standard form you can complete. Sometimes you will need to write one on a special form for each financial institution involved in the process, so make sure to have this information easily accessible to use it again if you have to. You can find the SBA’s Personal Financial Statement Form here.

Typically, this form will ask you to provide all the information on your cash accounts, your income sources, all the loans you owe, all the assets (like your house or vehicles), and any investment or retirement accounts you may own. If you have any student loans they commonly ask you about these as well, so don’t forget them if you have them while compiling your paperwork!

You can ask your banker if you should include your spouse’s income or not within the personal financial statement. Many loan requirement lists include both, but it does vary on the bank you work with or the amount you are looking to finance. If your spouse is part owner in your construction company, then you will both need to provide your personal financial statement information.

What Construction Financials Are Needed To Apply for the Paycheck Protection Program?

If you are applying for the Paycheck Protection Program (PPP), you will need to gather all of your payroll costs. This specific program is designed to help you cover 8 weeks of payroll costs, utilities, mortgage interest, and rent. You will need the payroll returns for the last 12 months (941, 940, state withholdings, and state unemployment). They will want to see your payroll registers, showing each employee’s pay for the last 12 months, including all vacation, sick pay, paid leave, and benefits. They will also want the benefits paid for all employees and may require copies of statements. Benefits can include retirement, health insurance and dental.

More information on this program can also be found through the SBA’s website, but you can complete pdf application online here.

How Can I Prepare My Construction Business for Refinancing with An Emergency Relief Loan?

Even before you start the SBA loan process, you should call on current loans to see if they offer deferment while you are in the process of getting assistance. Defaulting will create bigger problems for your business in the long run, and it’s important to call your lenders individually. This will allow you to see if they can defer your loan temporarily without creating any future issues for your construction business.

Depending on the lender, they could defer the entire loan amount, or require you to only pay the interest of the loan over the deferment period. Some deferments will not have any penalties and will not accrue any additional interest, which is a great thing! This will save your ‘cash’ and allow you to cover other bills to keep your business afloat during your SBA loan application period.

What Do I Need to Say About My Current Business Situation & Cash Flow Statement?

Depending on the loan program you may be applying for, you may be required to provide a statement explaining your current financial situation as a construction business. You may need to state items like loss of business, loss of employees, how all that has affected your business financially. This might not be information that you actually have on hand because if you have loss of business due to this recession, you won’t have any new signed contracts to use as documentation. This is a great time to use your construction bookkeeping software or a spreadsheet to layout your financial information’s monthly revenue stream. Once you have this, you can see what revenue has been lost due to the current economic conditions, by using your predicted average revenue and subtracting the actual. Mathematically, a quick estimate of this information could be calculated with the following equation:

Avg. Year’s Monthly Revenue – Actual Month’s Revenue While Affected By COVID-19 = Total Month’s Revenue Loss from the Crisis

Do this for each month that has been affected in the financial crisis and add them together to get your total loss of business.

You will also need to explain your plan of action to recover from this economic downturn, and what the funds that you are applying for will do for you to help you recover strategically. In order to do this, you will need to provide a cash flow forecast for the next 8 weeks. This will help you paint a clear picture of your costs and expected revenue. You will also need to include your employee costs based on the current situation.

You should also identify a list of costs that you think you could cut out, and don’t include them on your cash flow statement.

How Do I Explain The New Normal For My Construction Business Post Covid-19?

Within your business application, you should have a plan for how your construction business will function after Covid-19. Ask yourself how you can evaluate your current situation and improve it to be ready for post-covid-19? Whether that is through streamlining processes or ensuring that you have retained enough employees to continue functioning as a business after the epidemic has past, some lenders may require you to identify a ‘new normal’ post the pandemic. You will need to write a small summary of this.

Explain the changes that you’ve already made, the opportunities you’ll pursue in the future to improve your business’ model, and paint the new landscape for success. They want to be sure that you won’t face a similar crisis situation in the future. So, make sure to explain how you will solidify your construction business to withstand future economic impacts that could be a threat.

What Loan Programs Should I Be Looking Into For My Construction Business?

You will be surprised how many local loan programs are available all over the United States. The first place to start is to contact your local economic development agency. They can help you find programs that may be a good fit for you. You can also click here to find local SBA resources. You can also go to the SBA website, and see what is available for coronavirus funding funding options. A few of the programs that we have identified are linked below:

If you need assistance understanding your financials or streamlining your accounting processes to apply for any of these loans, please feel free to contact us! We are currently offering many forms of assistance through this difficult period. Get in touch with us today to ask your questions!

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