Jimmie Wilkins - SBDC Director, Oregon
A. The SBA does not make direct loans. They do, however, provide loan guarantees for small business owners. The process is straightforward although not without a serious amount of research on your part. You should take your Business Plan to a commercial bank for initial review. (Hint: Start with the bank you already have a relationship with through your business account.) If the loan officer/lender approves the loan subject to an SBA guaranty, the application and the bank’s credit analysis are forwarded by the lender to the SBA office. After SBA approval, the lending institution closes the loan and disburses the funds. You make your monthly loan payment directly to the lender.
The Business Plan is your opportunity to demonstrate the uniqueness and viability of your business. Your plan should include:
- Purpose of the Loan (Exactly what the money will be used for and specifically the amount required.)
- Business Description (History and nature of the business.)
- Management Profile (Each principal’s background, education, experience, skills & accomplishments as related to this business.)
- Market Information (Profile your customer and explain how your business can satisfy their needs. Identify your competition and how you will compete in the marketplace.)
- Financial Information (Projected Balance Sheet, Income Statement & Cash Flow on a monthly basis for one year, second & third year annualized. Personal financial statements on each principal.)
The old adage is still true; you only get one time to make a first impression. Be sure to put the same time and energy into building your loan proposal as you do running your business.
The first part (narrative) is generally considered easier to put together because this is your dream, your vision and your business. You make many business decisions as you transfer your ideas from your head to paper. By the act of writing it down, you will make assumption, make changes, and face many realities that the vision in your head may not have considered. Don’t feel the need to be linear in this process. Use the guides above and just write what comes to you in each of the categories. There is time later to flesh it out, make adjustments and make it a presentable business overview.
The financial information is often considered the most critical by a lender and sometimes the real stumbling block for the owner. Before you can make projections, you need a base for your assumptions. If you have historical data – great! You should base your future numbers on your historical data. If you are just beginning, you will need to do research on costs, pricing, customer preferences, etc. These assumptions you need to capture so your lender can see how your numbers were derived. This is a place where a business advisor can help as well. If you have done a good job on the narrative portion, the financial assumptions can be based on this analysis.
And finally, remember that your loan proposal is a snapshot of your entire business operations. Your lender will not want to read volumes upon volumes of documents – they will want to see clearly and succinctly that you know your business, that you can operate your business and that you can communicate your vision.
Copyright 2008 - Jimmie Wilkins
Source: http://sbdcnet.org/sbdc-national-blog/101.php
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