Small Business Loans in North Carolina: What You Need to Know

Gather all essential business formation documents including Articles of Incorporation/Organization, 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 executed.

Confirm your North Carolina business license is current and compliant with state and local requirements. Different industries may require specific licenses or permits. Check with the NC Secretary of State and your local municipality to ensure you have all required licenses for your business type.

Compile at least 2-3 years of business financial statements including balance sheets, income statements, and cash flow statements. Most lenders require these to be prepared according to GAAP standards. For newer businesses, provide all available financial history and projections.

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. Ensure all tax filings are current with no outstanding liabilities to avoid loan approval issues.

Develop a comprehensive business plan that includes market analysis, competitive positioning, growth strategy, and detailed explanation of how loan funds will be used. This demonstrates to lenders that you have a clear vision and repayment strategy.

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

Verify you have adequate business insurance coverage including general liability, property, professional liability, and any industry-specific policies. Lenders typically require proof of insurance before finalizing loans, and may require them to be listed as loss payee or additional insured on certain policies.

Research various loan options available to North Carolina small businesses including SBA loans, traditional bank loans, credit unions, and alternative lenders. Compare interest rates, terms, fees, and requirements to find the best fit for your business needs.

Obtain your business credit report from agencies like Dun & Bradstreet, Experian Business, and Equifax Business. Also check your personal credit report if a personal guarantee will be required. Review for errors and address any issues before applying for the loan.

Carefully review all terms in the loan agreement including interest rate, payment schedule, prepayment penalties, default provisions, and covenants. Consider having an attorney review before signing. In North Carolina, lenders must comply with the NC Retail Installment Sales Act and usury laws that cap interest rates for certain loans.

Examine the promissory note which is the legal document that outlines your promise to repay the loan. Verify the principal amount, interest rate, payment terms, and consequences of default match what was agreed upon and comply with North Carolina lending laws.

Understand the implications of signing a personal guarantee, which makes you personally liable for the business debt. In North Carolina, personal guarantees are enforceable and can put your personal assets at risk. Consider negotiating limitations on the guarantee if possible.

If providing collateral, carefully review the security agreement which gives the lender rights to specific business assets if you default. Ensure the collateral description is accurate and that you understand which assets are being pledged. North Carolina follows the Uniform Commercial Code (UCC) regarding secured transactions.

If your loan is secured, the lender will file a UCC-1 Financing Statement with the NC Secretary of State to perfect their security interest in your business assets. Verify the accuracy of this filing and understand that it creates a public record of the lender's claim to your pledged assets.

Create a system to track and comply with all loan covenants and reporting requirements. This may include maintaining certain financial ratios, providing periodic financial statements, or obtaining lender approval for major business decisions. Failure to comply with covenants can trigger default even if payments are current.

Ensure your business is properly registered with the North Carolina Department of Revenue and that all state tax obligations are current. Some loan programs require verification of tax compliance before funding.

If your business has 15 or more employees, ensure compliance with the NC Equal Employment Practices Act. Some lenders, particularly for SBA loans, require certification of non-discrimination in business practices.

Maintain separate business bank accounts and financial records from personal finances. This is crucial for legal protection of your business entity status and for accurate financial reporting to lenders.