When you’re embarking on a new business enterprise, or planning to expand on an existing venture, a business plan is your avenue for approaching would-be investors. SBA-affiliated lenders look for specific details of finances and projections, along with business and personal finance histories that justify funding requirements.
As such, you’ll need to create a robust, well-executed financial plan to accompany your SBA business plan and startup or growth loan application. Besides communicating your revenue projections, lenders can measure your businesses worth, expected performance, and your ability to make repayments.
In this article, find out how to create a strong financial plan that offers SBA lenders all the details needed to process and approve your small business financing.
An SBA-guaranteed loan can help get the required financing for startup capital for your enterprise, scaling to new markets, or acquiring new equipment, employees, or business partners. The purpose of a business plan is to convince lenders that your idea or strategy has sound financial grounding and they’ll see a return on their investment.
SBA loans have low-interest rates and flexible repayment terms but also require documentation that details your personal and business financial guarantees. That includes how you’ll utilize the funding for your business and how you’ll afford to repay the loan depending on your future cash flow estimates.
That said, you’ll stake your wealth or assets as collateral or security in case you’re unable to honor the SBA financing repayment. As such, a concise, factual, and realistic financial plan is the outline by which you’ll provide proof of profitability while guiding your business toward sustainable growth.
Documents included in your business plan are a financial plan that involves income statements, balance sheets and cash flow projections indicating your business’ fiscal health. When pitching to SBA investors these documents show how you plan growth, capitalize on opportunities, mitigate risks, and survive market challenges.
You’ll help your SBA lenders to determine your business sustainability and eventual profitability with a concrete financial plan that tracks your enterprise’s fiscal health. An existing business looking to scale or expand and for a startup has significant financial statements that make up your financial plan and these include;
Also known as a pro forma income or profit-and-loss, P&L statement, the income statement described how your enterprise experienced profit or loss over a specified period, usually three months. Included in this document are the costs of goods, or cost of sale in case of services, operating expenses such as utilities or rent, and revenue streams.
For an existing business, the income statement is underlined by the gross margin, which is an overview of your business’s total net profit or loss.
The cash flow statement indicates where the money comes from and where it goes, and for an existing business that includes a list of expenditures and bank statements for deposits. While a startup wouldn’t have much in terms of cash flow, it can include projected costs and intended uses of funding.
To determine your business’ equity or worth, a balance sheet describes the difference between your assets and liabilities, essentially showing where you stand financially. As a snapshot of your enterprise’s financial position at any given moment, this document adds up everything the business owns and subtracts debts.
A balance sheet consists of three parts, including assets, liabilities, and shareholder or business owner’s equity, which is a subtraction of liabilities from assets. While liabilities include accounts payables, loan repayments, and credit card balances, assets are your bank balance, inventories, and accounts receivables.
A projection of how long your business will recoup the SBA lender’s investment is called a break-even analysis, and it includes expenses for startup costs to ongoing projects. There are fixed and variable costs in this analysis, along with how much you need to sell to cover all expenses, called a breakeven point.
Fixed costs include expenses that remain static, and aren’t impacted by sales, such as wages, accounting fees, or rent. On the other hand, variables change according to sales volume or production, and understanding these helps markup revenue grow to maintain profitability.
In a given period, a sales forecast helps to determine how much money or sales you’ll make as part of an ongoing financial planning process. It’s an accurate prediction of your enterprise’s financial health as it predicts cash flow and must be consistent with the numbers in your profit and loss statement.
The sales forecast part of your financial plan towards your business’ SBA loan application is essential as it thoroughly tracks separate aspects of sales and growth. In your P&L statement, interest expenses for your funding will show the debt’s impact on profitability and repayments in the coming months or years.
A well-defined financial plan for your business plan will increase the chances of loan approval success with your SBA-affiliated lender. It clearly defines your enterprise’s financial solidity and presents the overall shape of your business to help investors commit to your vision.
To create a feasible financial plan, you’ll need to answer three questions, including how your business will make money, what it’ll do to get off the ground, and its operating budget. You’ll provide comprehensive answers to these questions via strategic and contingency planning, financial projections, and goal comparison and monitoring.
A strategic plan involves thinking about the accomplishments you want for your business and how you’ll achieve these objectives. It comes before you can look at the numbers as you’ll consider alternative resources and how new goals will affect your enterprise’s cash flow.
Create a list of anticipated expenses by considering your objectives and plugging in the costs needed for their achievement. Financial projections include sales forecasts that involve optimism and pessimism, which helps anticipate how each of these factors impacts your business’s overall financial health.
You must create a plan that looks at your assets and cash flow and considers a scenario where your business takes an unexpected turn, or there’s no revenue coming in. As such, you’ll make arrangements to have a substantial line of credit or cash reserves, and you’ll also plot of selling off assets to break even.
Using the results of your business’s cash flow statement, income projections, break-even analysis, or business ratios you’ll see where you’ve strayed from target and make adjustments. You’ll regularly check into your goals to spot potential issues and modify them before they get out of hand.
When learning how to create a strong financial plan for your SBA business plan, provide reasonable estimates in your projections and keep details brief. Knowing the type of investor you’re targeting helps customize your language that focuses on your business’ fiscal essentials and the opportunities presented.
Let your SBA business plan exude confidence, especially in the financial plan section, so your funder is convinced of you and your enterprise’s worth. You can get professional writing and consulting help to demonstrate your business’ strengths and request funding using subtle persuasion.
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