How to Make a Good SBA Business Plan
The U.S. Small Business Administration, also known as the SBA, doesn't make loans directly to companies, businesses or individuals. Rather, it guarantees the loans made by banks. The bank approves the loan and lends the money to the business. If the loan isn't paid back, the SBA reimburses the bank. There are a variety of loans available and for different purposes. A business plan demonstrates to the bank that the owner is fiscally responsible and will pay the interest and repay principal.
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Instructions
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Establish some sort of credit in the company's name. It might be something as simple as credit at an office supply store. An alternative is to obtain a secured credit card in the company's name. Secured means that you make a deposit to the bank in the amount of the approved credit limit. After a year, the bank will most likely return the money and change the account to unsecured. Banks prefer to lend to businesses with already established credit.
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Show that the company has demonstrated positive cash flow over the past two to three years in the business plan. SBA loans are not normally granted to start-up companies or those who have never run a business. Bankers want to see that the company has a history of earning enough to pay back the loan.
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Go through the balance sheet of the company to see if the debt-to-equity ratio qualifies for a loan. This ratio varies from bank to bank, industry and type of company. Most banks want to see that the company has more than enough assets on hand to pay back the loan even if the cash flow dries up or the company closes. These assets will not be valued at market rate but at a fire-sale rate. Of course cash, stocks and bonds are valued at current market rates. Inventory, supplies, equipment and furniture will not be. Accounts receivables will be discounted as well.
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Analyze the competition for your company and its products. Show how your product fills the market need better than your competitors' in your business plan. SBA lenders want to know that you know your competitors.
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Define the market and how you will reach your customers. Be specific. Saying that the market is $10 billion a year and you plan on capturing 1 percent of it is meaningless. Show what steps you will take such as publicity, advertising and social networking and how that will be effective in bringing in customers. SBA lenders want to see an organized approach to marketing.
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Underestimate revenues and overestimate expenses. Lenders are conservative. They need to see even if your company takes a downturn their loan is safe.
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Emphasize how well your company has done in the past and how well it is doing now. Don't depend on the future projections in the business plan to convince an SBA lender to approve the loan. Most lending institutions will look at your performance in the past and assume that's how you'll do in the future.
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Clarify how the loan proceeds will be used. You might need a revolving line of credit to support seasonal sales. Or perhaps new equipment is required for a new product line. Whatever it is, document the purpose of the loan in the business plan.
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Tips & Warnings
Be prepared to personally guarantee the loan.
Start the loan process well before you need the money. The lending process moves slowly.
References
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