Small Business Loans in Minnesota: What You Need to Know

Gather all essential business formation documents including Articles of Organization/Incorporation, Operating Agreement/Bylaws, EIN documentation, and any amendments. Lenders need these to verify your business's legal existence and structure. Ensure all documents are current and properly filed with the Minnesota Secretary of State.

Confirm you have all required Minnesota business licenses and permits for your specific industry. This may include general business licenses, professional licenses, health permits, or special industry permits. Minnesota requires different licenses based on business type and location. Check with the Minnesota Department of Employment and Economic Development (DEED) for specific requirements.

Compile comprehensive financial statements including balance sheets, income statements, and cash flow statements for at least the past 2-3 years (if available) and year-to-date financials. Minnesota lenders typically require these to assess your business's financial health and ability to repay the loan.

Generate a current accounts receivable aging report that categorizes outstanding customer invoices by time periods (e.g., current, 30, 60, 90+ days). This helps lenders assess your cash flow and collection practices.

Collect business tax returns for the past 2-3 years and personal tax returns if you're a sole proprietor or if the lender requires a personal guarantee. Minnesota lenders use these to verify income and assess tax compliance.

Create or update your business plan including executive summary, company description, market analysis, organization structure, product/service line, marketing strategy, funding request, and financial projections. Minnesota lenders often require this to understand how loan funds will be used and your plan for growth and repayment.

Verify you have adequate business insurance coverage as required by Minnesota law and potentially by your lender. This typically includes general liability, property, workers' compensation (if you have employees), professional liability (if applicable), and possibly key person insurance. Minnesota requires workers' compensation insurance for most businesses with employees.

Research loan options available to Minnesota small businesses, including SBA loans, traditional bank loans, credit unions, and Minnesota-specific programs like those offered through DEED. Compare interest rates, terms, fees, and requirements to find the best fit for your business needs.

Obtain your business credit report (if established) and personal credit report. Review for errors and take steps to address any issues. Minnesota lenders will check these reports as part of their underwriting process.

Carefully review the loan agreement provided by the lender. Pay special attention to interest rate, repayment terms, prepayment penalties, default provisions, and covenants. Consider having an attorney review this document before signing. Minnesota follows general contract law principles but may have specific usury limits and disclosure requirements.

Examine the promissory note which is your written promise to repay the loan. Verify the loan amount, interest rate, payment schedule, and consequences of default match what was discussed. Minnesota law governs enforcement of promissory notes, including potential remedies for default.

Determine if a personal guarantee is required for your loan. This makes you personally liable for the debt if your business cannot pay. Consider the risks carefully and negotiate terms if possible. In Minnesota, personal guarantees are legally enforceable and can put your personal assets at risk.

If your loan is secured, review the security agreement which identifies the collateral being pledged. Understand what business assets are being used as security and the consequences if you default. Minnesota follows the Uniform Commercial Code (UCC) regarding secured transactions.

If providing collateral, understand that the lender will likely file a UCC Financing Statement with the Minnesota Secretary of State. This public notice establishes the lender's security interest in the specified collateral. Verify the collateral description is accurate and not overly broad.

Ensure your business is properly registered with the Minnesota Department of Revenue for all applicable state taxes, including sales tax if you sell taxable goods or services. Lenders may verify tax compliance before approving loans.

If you have employees, verify compliance with Minnesota employment laws, including minimum wage requirements ($10.59/hour for large employers, $8.63/hour for small employers as of 2023, subject to change), overtime rules, and proper worker classification. Non-compliance could affect your loan eligibility or create financial liabilities.

Create a calendar with all loan-related deadlines including payment due dates, financial reporting requirements, insurance renewal dates, and any covenant compliance dates. Minnesota law generally enforces contractual deadlines, and missing them could trigger default provisions.

Set up or update your accounting system to track loan proceeds, expenditures, and repayments. This helps with both loan compliance and tax reporting. Minnesota businesses must maintain adequate financial records for tax purposes.

Create a system to document how loan proceeds are used, especially for SBA or other government-backed loans. Misuse of funds could violate loan terms or potentially constitute fraud. Keep detailed records of all expenditures made with loan proceeds.

Understand ongoing compliance requirements including annual business filings with the Minnesota Secretary of State, renewal of business licenses, and any industry-specific reporting. Staying compliant is essential to maintaining good standing and avoiding loan default triggers.