Welcome back to the Pioneer Buy-Side Brief. This is part 2 of last week's email, Demystifying the SBA Loan Underwriting Process. If you missed that one, search your inbox for the email I sent on January 13th, or read it here.

Demystifying the SBA Loan Underwriting Process

Part 2: Approval, Conditions, and Next Steps

In Part 1, we walked through what happens after you submit your SBA loan application:

The underwriting process, the Five C's of Credit, and how lenders evaluate your deal. We ended with a key insight: your underwriter becomes your advocate, writing the narrative that tells your story to the credit committee.

Now comes the moment you've been waiting for: the credit decision.

Let's pick up right where we left off.

The Credit Decision

The underwriting process culminates in a formal credit decision.

In most cases, this takes the form of an approval with conditions (which is exactly what you're hoping for).

Receiving a loan approval is a major milestone.

It means the lender has reviewed your deal through the lens of Character, Capacity, Capital, Collateral, and Conditions and they're comfortable moving forward. Your underwriter made the case, and the credit committee said yes.

Here's an important point: an approval is not the finish line. It's more like reaching the final stretch. The lender has committed to funding your deal, but there's still work to be done before you close.

The Commitment Letter

An approval is typically delivered through a commitment letter (sometimes called an approval letter or term sheet). This is the formal document that outlines the terms of your loan and the lender's commitment to fund.

What the Commitment Letter Includes

Your commitment letter will spell out the key terms of the loan:

• Approved loan amount
• Interest rate (typically Prime plus a spread, as allowed under SOP 50 10 8)
• Term length
• Required collateral
• Personal guarantee requirements.

It serves as the lender's binding offer, contingent on meeting certain requirements before closing.

The letter will also include conditions precedent to closing, often referred to as "stips" (short for stipulations) or a closing checklist. These are the items you'll need to satisfy before the lender wires the funds.

Think of these as the final verification steps. The lender is confirming that everything discussed during underwriting is actually in place.

Most commitment letters have an expiration date, typically requiring acceptance and closing within 30 to 60 days. This timeline keeps the deal moving and ensures the lender's credit decision remains current. Financial circumstances can change, and lenders don't want stale approvals sitting in their pipeline.

What to Do When You Receive It

Read the commitment letter carefully. If anything looks unexpected (a different rate than discussed, collateral requirements you weren't anticipating, or unfamiliar conditions) reach out to your lender or loan broker right away. It's much easier to clarify or negotiate terms before you sign than after.

Once you're comfortable with the terms, signing the commitment letter formally accepts the loan and moves the deal into the closing phase.

Closing Checklist

SBA loan approvals almost always come with conditions. This is completely normal. It doesn't mean anything is wrong with your deal. Conditions are simply the lender's way of ensuring all required documentation is finalized and verified before funding.

Here are some of the most common items you'll see on a closing checklist:

• Final purchase agreement: If you were operating under a letter of intent during underwriting, you'll need to finalize and execute the definitive purchase agreement (often called the APA or asset purchase agreement).
• Business insurance: Proof of appropriate coverage is required, with the lender named as loss payee or additional insured. Depending on the deal size and structure, the lender may also require key person life insurance on the buyer.
• New borrower entity formation: Your acquisition entity must be fully formed before closing—articles of organization or incorporation filed, operating agreement or bylaws executed, EIN obtained, and ownership details documented. The SBA requires the borrowing entity to be a for-profit business operating in the United States.
• Landlord consent or subordination: For businesses operating from leased locations, the lender typically needs the landlord to consent to the lease assignment or provide a subordination, non-disturbance, and attornment agreement (SNDA). This protects the lender's interest if something goes wrong.
• Equity injection verification: Remember the 10% minimum equity injection we discussed in Part 1? The lender will verify your cash contribution through bank statements showing seasoned funds, gift letters (if applicable), or escrow account documentation. The money must be traceable and legitimate.
• Third-party reports: Depending on the deal, you may need a business valuation, real estate appraisal (for deals involving commercial property), or environmental assessments (Phase I or Phase II reports for certain property types).
• Legal and compliance documents: Franchise agreements (with franchisor approval), state tax clearance certificates, seller affidavits, UCC searches, and other deal-specific legal items may be required depending on your transaction.

Staying on Track Post-Approval

The approval is in hand, but now comes the execution phase. This is where staying organized makes a real difference.

Start by reviewing the full list of conditions and prioritizing them immediately. Some items, like landlord consent or third-party appraisals, can take weeks to complete. Others, like forming your entity or securing insurance quotes, may move faster but still require attention and follow-up.

Delegate where you can. Your attorney, insurance agent, CPA, and the seller all have roles to play in clearing conditions. A simple shared checklist that tracks each item, assigns an owner, and sets a target completion date can prevent delays and keep everyone accountable.

Once the commitment letter is signed, a closing officer or closing team will typically take over coordination on the lender's side. They'll manage the checklist, gather final documents, coordinate with title companies and attorneys, and work with all parties to schedule the closing. Your job is to stay responsive and proactive.

Here's the key: fast, complete, and professional responses (just like during underwriting) materially improve your chances of closing on time. When a request comes in, turn it around quickly with everything asked for. The same responsiveness that impressed your underwriter will serve you well through closing.

What If You're Declined?

Not every deal gets approved on the first try. But a decline isn't the end of the road.

Declines typically trace back to the Five C's we covered in Part 1. The most common reasons include:

• Capacity concerns: The debt service coverage ratio doesn't meet the lender's threshold. Remember, most lenders target 1.25x or higher. If your deal is below that, the math simply doesn't work for them.
• Character issues: Personal credit history, unresolved collections, or past bankruptcies may be factors. As we discussed, these don't automatically kill deals. But without clear explanations, they can.
• Capital shortfalls: The equity injection may be insufficient, or the source of funds couldn't be verified to the lender's satisfaction.
• Collateral gaps: The lender may require additional security that isn't available.
• Lender-specific policy: Some lenders have internal restrictions around certain industries, deal sizes, geographic areas, or borrower profiles that go beyond SBA requirements.

If you receive a decline, ask the lender for specific feedback. Understanding why the deal was turned down gives you a roadmap for next steps. That feedback can guide deal restructuring.
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Perhaps adjusting the purchase price, increasing your equity contribution, securing additional collateral, or renegotiating seller financing terms, or help you reposition the deal with a different lender who may have different risk tolerances.

Here's the silver lining: all the work you've already done transfers. Your SBA Form 413, business plan, financial projections, and supporting documents can be reused with another lender or adapted for a restructured deal. A good loan package doesn't go to waste.

The Path to Closing

Once the commitment letter is signed and conditions are being cleared, the process shifts from underwriting to execution. This is no longer about convincing the lender to approve your deal. That work is done. Now it's about crossing every t and dotting every i to get to the closing table.

The keys to success in this phase are straightforward:

• Stay responsive. When your closing team or lender reaches out, get back to them quickly. Delays compound. A slow response on one item can push back the entire timeline.
• Stay organized. Track your conditions, know what's outstanding, and follow up with vendors, attorneys, and advisors regularly.
• Stay proactive. Don't wait for someone to chase you down. Anticipate what's needed and get ahead of it. The best closings happen when buyers are driving the process, not just reacting to it.

That's the mindset that gets deals closed.

Wrapping Up

Over these two newsletters, we've walked through the complete SBA loan underwriting journey. From the moment you hit submit to the path toward closing.

The process can feel opaque from the outside, but it follows a logical structure: lenders evaluate risk through the Five C's, underwriters build the case for your deal, and approvals come with conditions that need to be cleared before funding.

Reaching approval is a significant achievement. Take a moment to recognize that. But then get right back to work. The deals that close on time and on terms are the ones where buyers stay engaged, organized, and responsive from commitment letter to wire.

As always, if you have questions about SBA financing or need help navigating your deal, we're here to help.

If you are early in your acquisition search, start building your document package now. If you are already under LOI and need financing support, this is the right time to engage.

For pre-LOI buyers ready to explore opportunities: Schedule a meet & greet call​

Already have a deal under LOI and need financing help: Schedule an LOI consultation​

Matthias Smith​
Pioneer Capital Advisory LLC

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Disclaimer: The information in this newsletter is for informational purposes only and should not be considered legal or financial advice. Business buyers are encouraged to consult with their legal counsel and accountant to ensure the proper structuring of their transactions and to fully understand the tax implications of seller financing.

Thanks for reading! Feel free to reply directly to this email with any questions or thoughts.