SBA Form 1920: Lender’s Application for All 7(a) Loan Programs
Whether you need funding to start or grow a business, or see your company through difficult times, a loan from the Small Business Administration (SBA) may be the answer. Your application for the SBA’s popular 7(a) loan will include SBA Form 1920.
Also known as the Lender’s Application for Loan Guaranty, this is the paperwork the SBA uses to determine whether it will guarantee your loan. It’s this guarantee that reduces the risk for lenders, allowing them to offer relatively high approval rates and reasonable fees and terms.
What is SBA Form 1920?
SBA Form 1920 is a part of the borrower’s loan package, but it needs to be completed by the lender, not the borrower. Borrowers have their own form, SBA Form 1919. Both forms and other supporting documentation are used to evaluate your business’s eligibility for the SBA 7(a) loan program.
That’s why it’s important for small business owners to understand what goes into Form 1920 since the lender will turn to you to collect much of the information necessary to complete it.
Here’s an overview of each section of SBA Form 1920.
Part A: Processing method
The first column of Part A of SBA Form 1920 asks the lender whether processing the application will be delegated or non-delegated.
- Non-delegated processing. For non-delegated processing, the SBA makes the loan approval decision, including evaluating the borrower’s credit.
- Delegated processing. For delegated processing, the SBA-approved lender has the authorization to make credit decisions and approve applications without prior review by the SBA. However, its decisions must comply with SBA requirements.
The majority of loans guaranteed by the SBA are done under delegated processing. The SBA grants delegated authority to certain lenders that it deems able to develop and analyze complete loan packages and that have a good track record with the SBA. Section S also provides more guidelines on loans that are eligible for delegated processing.
The lender next indicates which type of 7(a) loan the borrower is seeking, if different from the standard 7(a) loan. The SBA 7(a) actually consists of several different loans including:
- Standard 7(a). Maximum loan amount of $5 million.
- 7(a) Small Loan. Maximum loan amount of $350,000.
- CAPLines. Maximum loan amount of $5 million. This program includes four different SBA lines of credit.
- SBA Express. Maximum loan amount of $1 million with an accelerated turnaround time for SBA review. The SBA Express can be revolving (like a line of credit), or a term loan.
- Export Express. Maximum loan amount of $500,000. Designed to help small businesses develop or expand their export markets. The loan can be revolving (like a line of credit), or a term loan.
- International Trade. Maximum loan amount of $5 million. Designed to provide long-term financing to businesses that are expanding because of growing export sales.
- Export Working Capital. Maximum loan amount of $5 million. Designed for businesses that can generate export sales and need additional working capital to support these sales.
- Community Advantage. Maximum loan amount of $250,000. This pilot program designed to help businesses in underserved areas expires on Sept. 30, 2022.
If you are applying for a Community Advantage loan, 7(a) Small Loan or CAPLine loan, you will also need to answer questions in Section U. Applicants for Export and International Trade Loans also need to complete Section W. These sections provide program-specific requirements and limitations for different types of loans.
Part B: Applicant business information
In Section B, your lender will provide some basic information about your business. This includes whether your business is a startup (not yet open), a new business (open two years or less), an existing business (open more than two years) or a business undergoing a change of ownership. Businesses planning to use 7(a) proceeds to fund or refinance a change in ownership will need to fill out sections O and P.
Other information you may need to provide to your lender to complete this section includes:
- Business’s legal name and DBA, if applicable
- When the business was first established and the date when the current ownership was established, if different
- Address, phone number and point of contact
- Tax identification number as well as NAICS Code
- The legal structure of the company, such as sole proprietor, partnership, LLC or corporation. ESOPs — Employee Stock Ownership Plans — will need to fill out Section M.
- Number of people employed by the business and number of jobs that will be created or retained because of the loan
- Whether the business is in an urban or rural area
Eligible Passive Company
This section also includes a box to check if your business is an Eligible Passive Company (EPC). Typically, the SBA does not loan money to passive companies, such as real estate holding companies. However, it makes an exception for EPCs if the business uses the loan to acquire, improve or renovate property that it leases to an operating company. If your business is an EPC, you will also need to complete Section R and V.
Co-applicant business information
If you have a co-applicant, your lender will need to provide information about the co-applicant. This includes their name, address, tax identification number, the date the business was established and legal structure.
Part C: Lender information
Section C of SBA Form 1920 is for the lender to provide their own information. You shouldn’t need to provide any information for this section. It’s just the lender’s name, address, identification number and contact information.
Part D: Loan structure information
Section D of the SBA 1920 form is for the lender to provide details on the structure and amount of your loan. This includes:
- Requested loan amount
- Amount to be guaranteed by the SBA
- Loan term (in months)
- Payment amount
- Whether the interest rate is fixed or variable, how often the rate will adjust and when the first adjustment will occur
- Whether the rate is based on Prime, LIBOR or another underlying index
Part E: Complete project information
Section E of SBA 1920 provides information to the SBA on how you intend to use the proceeds of the loan. Options include:
- Purchasing land
- Constructing, expanding, or renovating property
- Improving property leased to others
- Purchasing machinery, furniture and fixtures or inventory
- Supplying working capital for the business
- Acquiring another business
- Paying off an existing SBA loan or other payables — such businesses will need to fill out Section X and include a business debt schedule.
This section also includes a column for “borrower injection,” which is essentially a down payment required in certain circumstances, including startup businesses and changes in ownership.
How to fill out SBA Form 601
If $10,000 or more of your loan proceeds will be used for construction or renovation, you’ll also need to complete SBA Form 601. By signing this form, both the borrower and contractor agree they will not discriminate against anyone based on race, color, religion, sex or national origin in their hiring and employment decisions.
Section F: Fees paid to others
Section F asks one question: Whether the applicant paid a fee to the lender or another third party to assist with preparing the loan application or other materials.
If the answer to this question is yes, the lender and applicant have to complete SBA Form 159. This form identifies any paid help you received during the loan application process to ensure that lenders and other third parties don’t take advantage of borrowers by charging exorbitant fees.
Sections G-X: Eligibility requirements
The remaining sections of SBA Form 1920 require the lender to answer questions that help determine whether the applicant is eligible for an SBA loan. Here’s an overview of those general eligibility requirements:
- Be a for-profit business. SBA loans are typically not available to non-profit organizations. Eligible applicants are for-profit businesses that are officially registered and operating legally.
- Do business in the U.S. Only companies that are physically located and operating in the U.S. or its territories are eligible for SBA loans.
- Have invested equity. The SBA generally requires a business owner to have invested their own time and money into the business.
- Exhaust financing options. The SBA typically only makes loans to companies that cannot get funds from another lender.
- Meet SBA size standards. The SBA does not have a one-size-fits-all definition of what constitutes a “small” business. Its definition of small varies by industry. You can determine whether your business qualifies as a small business by using the SBA’s Size Standards Tool.
- Be an “operating company.” As we mentioned earlier, the SBA generally doesn’t make loans to passive companies, such as developers or landlords that make money by collecting rents or earning money from investments. However, the SBA makes an exception for Eligible Passive Companies that lease property to one or more operating companies.
The SBA also requires lenders to get a personal guarantee from at least one owner of the business receiving the loan. All owners with an interest or 20% or more in the business are required to personally guarantee the loan. This means, if the business is unable to pay back the loan, the guarantor is personally liable to pay back the outstanding debt.
Section K of SBA Form 1920 requires the lender to get information about the borrower’s criminal record. The lender gathers this information by starting with Questions 17-19 of SBA Form 1919.
If you answer “Yes” to Question 17, indicating you’re currently under indictment, you’re not eligible for an SBA loan. If you answer “Yes” to Question 18 or 19, meaning you’ve been arrested in the past six months or have ever been convicted of a crime, you’ll need to complete SBA Form 912.
SBA Form 912 collects some basic information about you, including former names you may have used. It authorizes the SBA to conduct a criminal background check on you as a part of the loan underwriting process.
Section L of SBA Form 1920 lists 14 types of businesses that are ineligible for an SBA 7(a) loan. These include:
- Non-profit businesses
- Businesses whose primary function is lending money (i.e., banks, life insurance companies, finance companies, factoring companies, etc.)
- Passive businesses (discussed above)
- Businesses located in a foreign country or owned by an undocumented immigrant
- Multilevel marketing businesses where the participant’s primary incentive is based on recruiting new distributors rather than selling products
- Companies involved in any illegal activity
- Businesses primarily engaged in teaching or promoting religious objectives
- Businesses that earn one-third or more of their revenue from packaging SBA loans
- Companies that earn more than 5% of their revenue from sales of products, services, depictions or displays that are “of a prurient sexual nature”
- Businesses primarily engaged in political or lobbying activities
- Speculative businesses, such as mining or research and development
- Businesses that get more than one-third of their revenues from legal gambling
- Private clubs or businesses that limit the number of memberships for reasons other than capacity
- Government-owned entities, except for businesses owned or controlled by a Native American tribe
If you previously defaulted on a federally insured loan, such as a home loan backed by the FHA, USDA or VA, or a federal student loan, you may not be eligible for an SBA loan. However, if your default was due to circumstances beyond your control, your lender may be able to request a waiver.
The small business applying for the loan must be at least 51% owned and controlled or managed by a U.S. citizen or lawful permanent resident of the U.S.
Some franchise businesses are eligible for SBA loans. The SBA maintains a franchise directory to help lenders evaluate which franchises are eligible for its 7(a) loan program. You will need to complete Section Q and the lender will also need to get a copy of your franchise agreement, and SBA Form 2462 or Form 2463.
How to submit Form 1920
Once your lender gathers SBA forms 1919 and 1920, and other required forms and documents from you, the lender must sign the lender certification section of your application. Then it can submit your loan package to the SBA electronically.
The lender can submit your SBA loan application using one of two systems: SBA One or e-Tran. These are systems that only SBA-approved lenders can access – borrowers cannot submit their loan application or supporting documents on their own.