What is an SBA 7(a) Opinion Letter and Why Do Borrowers Need One?

by | Mar 14, 2022

Is your small business seeking funding or financial assistance from lenders backed by the U.S. Small Business Administration (SBA)? If so, you’re likely looking at a type of 7(a) loan, the SBA’s most common loan program, which can be used for commercial real estate, working capital, debt refinancing, office furniture or supplies, and more.

SBA 7(a) loans are backed by the SBA but issued by private lenders. As such, the terms may vary by the type of 7(a) loan – of which there are several – and the lender themselves. They can be challenging to qualify for (see below), but they are considered a preferred option for financing because they offer low-interest rates paired with long repayment terms.

There are several requirements that you’ll need to meet in order to be eligible for an SBA 7(a) loan. First, your business must meet the definition of a small business and operate as a for-profit doing business in the United States or its possessions. In addition, applicants must have some equity invested, and must have used other financial resources, including personal assets, first. You must also be able to demonstrate a need for a loan and that the funds will be used for sound business purposes. Finally, you may not be delinquent on any debt owed to the U.S. government.

What documents will you need to apply for an SBA 7(a) loan?

Once you’ve determined that the 7(a) loan is right for your specific business needs, you’ll need to gather all of the pertinent information and documentation that will be required by a lender. This can be extensive, so it’s important to be organized and know where to find records and files.

There are a few standard SBA forms that you’ll need to start with, including borrower information (SBA Form 1919), a statement of personal history (SBA Form 912), and a personal financial statement (SBA Form 413).

After that, you’ll want to gather financial statements, including profit and loss statements and a detailed one-year projection of income and finances. You’ll need to provide a list of ownerships and affiliations, a business license or certification, your loan application history, three years’ worth of personal and business federal tax returns, resumes for all business principals, a copy of the business lease, and an overview/history of the business itself.

If you are planning to purchase a business from someone else, some additional paperwork will be requested. Also note that different lenders may require other paperwork depending upon their individual policies and procedures.

What is an SBA 7(a) Opinion Letter?

Sometimes this is also referred to as an Opinion of Borrower’s Counsel. Though it is not always required as part of the loan application process, some lenders will request one and it should be considered a best practice for any SBA 7(a) loan request.

This particular type of opinion letter is drafted with a specific purpose: to provide peace of mind to the lender and bolster a borrower’s chance of success in qualifying for their desired 7(a) loan. It is written by an attorney, preferably one who specializes in business law, to advocate on behalf of the borrower to the lender.

An SBA 7(a) opinion loan will ease any concerns the lender may have about the borrower’s business affairs and their ability to repay the loan according to the terms of the agreement. It should help facilitate the loan’s approval and provide reassurance to the lender that they are acting in compliance with requirements set forth by the SBA loan program.

What does an SBA 7(a) Opinion Letter include?

The legal counsel that drafts an opinion letter for an SBA 7(a) loan will confirm a number of details that should eliminate any doubts held by the lender. The letter will outline that there are no concerns regarding legalities that may include: that the applicant has the authority to conduct business and to enter into a financial arrangement with the lender, that they have any licenses or approvals required, and that the borrower has been advised – and is aware of – the enforceable nature of the loan documents.

The opinion letter should verify that the borrower is operating in compliance with all state laws and that the business entity was formed in a valid manner. It will confirm that entering into the loan agreement will not violate any other agreements to which the borrower is a party or conflict with any government orders or regulations to which the borrower is subject.

Depending on any unique circumstances, the opinion may include additional details that explain the nature of the business and its funding request.

As a borrower, do you need an SBA 7(a) Opinion Letter?

As indicated above, the SBA 7(a) opinion letter is not universally required for all loan applications, but it is a wise decision to include one as part of the application regardless. Having an opinion letter issued by experienced legal counsel with a business law specialty could positively impact the outcome of the lender’s decision.

From the start, it demonstrates that the borrower has retained the services of legal counsel, which indicates they will be diligent about business law compliance in general. This should provide the lender with additional confidence in the ability of the applicant to meet the financial terms of the agreement down the line.

If it sounds like an SBA 7(a) loan is right for your growing small business, you’ll want to gather all the required documentation and complete the relevant SBA forms as outlined earlier in this article. To move forward, you’ll also want to schedule a consultation with a law firm that is well versed in commercial and business law.

At the consultation, your attorney may ask to review any of the documents required for the loan application and will ask questions regarding the nature, history, and status of your small business. Following the consultation, your attorney will conduct some independent research to verify the facts at hand before drafting the SBA 7(a) opinion letter for inclusion in the loan application package.

For more information about the SBA 7(a) loan program, please visit: https://www.sba.gov/funding-programs/loans/7a-loans

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