When writing a business plan and especially coming up with the financials it is very important to keep in mind the guidelines the SBA has put forth for funding a project that lies outside the business plan. The business plan requirements are more than just a detailed market analysis, executive summary, and pretty financials. It is also important that the potential business opportunity be backed by a solid management team.
It is also important for the business plan to represent an equity investment from the owner. Banks are not speculative organizations and in turn are not looking to gamble on a business concept. That's why they will generally require the owner to have at least a 20% equity investment into the business. This way, the SBA's 80% backing covered them 100% and they have no exposure other than possible default by the investor. The funding of this portion of the plan can be collateralized in a few different ways. It can either be with negotiable instruments such as stocks and bonds, cash, real estate, or even primary home equity.
In the business plan, it's important to also reflect adequate and realistic pro forma projections. The earning requirements of the business are paid from cash, and the company must have a strong enough cash flow, not profit, to support the new liabilities. The company must be able to meet all the debt payment, payroll, fixed expenses, operating expenses, and interest requirements.
It's important to demonstrate to the SBA that you can adequately manage the resources of the business and yourself. That's why when applying for an SBA loan with a solid business plan, it's also important to have good credit, and "skin in the game" or collateral.
If you would like more information on obtaining a business plan, call the number at the top of the page or fill out the contact form to contact a business plan professional today. The biggest mistake potential entrepreneurs make is not getting started.