Operating Agreement SBA: What You Need to Know
If you`re a small business owner, you may have heard of an operating agreement. An operating agreement is a legal document that outlines the rules and regulations of how your business will be run. If you`re looking to secure financing from the Small Business Administration (SBA), having an operating agreement in place is a crucial step.
What is an Operating Agreement?
Before we dive into the importance of an operating agreement for SBA financing, let`s first define what it is. An operating agreement is a contract between the members of a limited liability company (LLC) that outlines how the business will be run. It includes information such as the management structure, voting rights, profit distribution, and more.
Why Do You Need an Operating Agreement for SBA Financing?
When applying for a loan through the SBA, having an operating agreement in place is essential. The SBA requires an operating agreement as part of the application process for certain types of loans, such as the 7(a) loan program.
Having an operating agreement shows the SBA that your business is legitimate and organized. It also gives them insight into how your business is structured and run, which can help them assess the level of risk involved in lending you money.
Additionally, having an operating agreement in place can help protect your business and its assets. Without an operating agreement, your LLC may be subject to the default rules of your state, which may not be ideal for your business.
What Should Be Included in an Operating Agreement?
While the specifics of an operating agreement will vary depending on your business structure and needs, there are certain key elements that should be included:
1. Management Structure: This section outlines who is responsible for managing the business, including any designated managers or members.
2. Voting Rights: This section describes how voting will work within the LLC and who has the authority to make decisions.
3. Profit Distribution: This section outlines how profits will be distributed among members, including any profit-sharing agreements.
4. Ownership Percentage: This section describes how ownership percentages are determined and allocated among members.
5. Transfer of Ownership: This section outlines how ownership interests can be transferred to new members or sold to outside parties.
6. Dissolution: This section outlines the steps that need to be taken in the event of a dissolution of the LLC.
In summary, an operating agreement is a critical document for any small business, especially when it comes to securing financing from the SBA. It`s important to have an operating agreement in place that reflects your business structure and needs, and that complies with state laws and regulations.
As a small business owner, it`s essential to work with an experienced attorney who can help you draft an operating agreement that protects your business and aligns with SBA lending requirements. With the right operating agreement in place, you can set your business up for success and secure the financing you need to grow and thrive.