Small Business Loans in Washington State: What You Need to Know

Research different loan options available for small businesses in Washington state. Consider SBA loans, traditional bank loans, credit unions, online lenders, and community development financial institutions (CDFIs). Compare interest rates, terms, fees, and eligibility requirements to find the best fit for your business needs.

Create a comprehensive business plan that outlines your business model, market analysis, competitive advantage, management team, financial projections, and how you plan to use and repay the loan. Lenders in Washington will require this to evaluate your business's viability and loan repayment ability.

Collect all business formation documents including Articles of Incorporation/Organization, Partnership Agreement, or Sole Proprietorship registration filed with the Washington Secretary of State. These documents prove your business's legal existence and structure, which affects liability for the loan.

Ensure your Washington state business license is current and that you have all required local licenses and permits. Washington requires businesses to register with the Department of Revenue and obtain a Unified Business Identifier (UBI). Some lenders won't approve loans for businesses not properly licensed.

Compile financial statements including balance sheets, income statements, and cash flow statements for at least the past 2-3 years (if available) and projections for the next 2-3 years. Washington lenders will scrutinize these to assess your business's financial health and loan repayment capacity.

Collect business and personal tax returns for the past 2-3 years. Washington lenders typically require these to verify income and ensure tax compliance. For pass-through entities like LLCs, S-Corps, or partnerships, personal returns are especially important as business income flows to personal returns.

Create an accounts receivable aging report that categorizes outstanding invoices by time periods (current, 30, 60, 90+ days). This helps lenders assess your cash flow management and collection practices, which is particularly important for Washington businesses with B2B models.

Review and update business insurance policies to meet lender requirements. Washington lenders typically require general liability insurance, and depending on your business type, may require professional liability, property, workers' compensation, or other specialized coverage. Ensure policy limits meet lender minimums.

Carefully review the loan agreement, which outlines all terms and conditions of the loan. Pay special attention to interest rates, repayment schedule, prepayment penalties, default provisions, and covenants. Washington follows general contract law principles, but certain consumer protection provisions may apply to small business loans.

Examine the promissory note, which is your written promise to repay the loan. Verify that the principal amount, interest rate, payment schedule, and maturity date match what was agreed upon. In Washington, promissory notes are governed by the Uniform Commercial Code (UCC) and must contain specific elements to be legally enforceable.

Understand the implications of signing a personal guarantee, which makes you personally liable for the business loan. Washington courts generally enforce personal guarantees, so consider whether you're willing to put personal assets at risk. If possible, negotiate limitations on the guarantee or explore loans that don't require one.

Analyze the security agreement, which identifies which business assets will serve as collateral for the loan. In Washington, security agreements are governed by UCC Article 9. Ensure the collateral description is accurate and consider negotiating to exclude essential business assets if possible.

Learn about UCC financing statements, which are public notices filed with the Washington Department of Licensing that alert other creditors about a lender's security interest in your business assets. These filings can affect your ability to obtain additional financing, so understand which assets are covered and for how long.

Verify that your loan's interest rate complies with Washington's usury laws. For business loans, Washington allows higher interest rates than consumer loans, but there are still limits. The legal maximum interest rate for written agreements is 12% unless the lender qualifies for an exemption (most banks and financial institutions do).

Establish a system to monitor ongoing compliance with loan covenants and reporting requirements. Washington lenders typically require periodic financial statements, tax returns, and other reports. Create calendar reminders for submission deadlines and regularly review covenant compliance to avoid default.

If your loan involves real property as collateral, ensure proper recording of deeds of trust or mortgages with the county recorder's office in the Washington county where the property is located. For personal property collateral, the lender will file a UCC-1 financing statement with the Washington Department of Licensing.

Familiarize yourself with Washington's debt collection laws in case of default. Washington follows the Fair Debt Collection Practices Act (FDCPA) and has additional state protections. Understanding these laws helps you know your rights if you face collection actions and can inform negotiations if you encounter repayment difficulties.

Develop a detailed loan repayment strategy that aligns with your business cash flow. Consider setting up automatic payments to avoid late fees and potential default. Washington law generally allows lenders to charge late fees, so timely payments are crucial to maintaining good standing and credit.