EOU SBDC Business Plans

Successful small business expansions and new formations lead the way in creating new markets, innovations and jobs that fuel economic growth and prosperity. In recognition of the importance of small business to a strong economy, the U.S. Small Business Administration (SBA) helps meet the information needs of existing business owners and aspiring entrepreneurs. Your success in business depends upon what you know and how well you can apply what you have learned.

One key to a successful business start-up and expansion is the ability to obtain and secure appropriate financing. Raising capital is the most basic of all business activities, but as many entrepreneurs quickly discover, raising capital may not be easy. It can be a complex and frustrating process. But if informed, well prepared and planned effectively, raising money for a business will not be a painstaking experience. This information summary focuses on the ways a small business can raise money and describes how to prepare a loan proposal.

There are several sources to consider when looking for funding. It is important that you explore all of your options before making a decision.

Personal Savings: Most new businesses are started with the primary source of capital coming from personal savings and other forms of personal equity.
Friends and Relatives: Many entrepreneurs look to private sources such as friends and family when starting out in a business venture. Oftentimes, money is loaned at no interest, or with low interest, which can be beneficial when getting started.
Venture Capital Firms: These firms provide initial start?up and other needed money for new companies in exchange for equity or part ownership.
Banks and Credit Unions: The most common source of funding, banks and credit unions will provide a loan if you can show that your business is sound.

It is often said that small business people have a difficult time borrowing money. This is not necessarily true. Banks are in the business to make money, and the way they make money is by lending money. However, it is the inexperience of small business owners in financial matters, that prompts many small business loan requests to be turned down. To be successful in obtaining a loan, you must be prepared and organized. You must know exactly how much money you need, why you need it and how you can pay it back. You must be able to convince your lender that you are a good credit risk. Requesting a loan when you are not properly prepared makes a statement to your lender. That statement is . . . "High Risk!"

Short-term Loans: Loans that are paid back in less than one year. Types of short term loans include:

Long-term Loans: Loans with maturities greater than one year, but usually less than seven years. These loans are used for major business expansions, purchases of real property, acquisitions and in some instances start-up costs. Types of long-term loans include:

Approval of your loan request depends on how well you present yourself, your business and your financial needs to a lender. Remember, lenders want to make loans, but they want to make good loans, loans they know will be repaid. The best way to improve your chances of obtaining a loan is to prepare a written loan proposal. A good loan proposal will contain the following key elements:

- Business name, name of principals, social security number for each principal and business address.
- Purpose of the loan -- State exactly what the loan will be used for and why it is needed.
- Amount required -- Request the exact amount you need to achieve your purpose.

- History and nature of business -- Give details of your business's age, number of employees and current business assets.
- Ownership structure -- Provide details on your company's legal structure.

- Develop a short statement on each principal in your business; provide background, education, experience, skills and accomplishments.

- Clearly define your products and your market.
- Identify your competition and explain how your business competes in the marketplace.
- Profile your customers and explain how your business can satisfy their needs.

- Financial statements -- Provide balance sheets and income statements for the past three years. If you are just starting out, provide a projected balance sheet and income statement.
- Personal financial statement -- Prepare a personal financial statement on yourself and other principal owners of the business.
- Collateral -- List all collateral you would be willing to pledge to the bank as security for the loan.

A loan officer's primary concern when reviewing a loan request is whether or not the loan will be repaid. To help answer this question, many loan officers will order a copy of your business credit report from a business credit reporting agency. Therefore, it is helpful if you work with these agencies to help them prepare an accurate picture of your business.

Using the credit report, and the information you have provided, the lending officer Will consider the following issues:

Have you invested savings or personal equity in your business totaling at least 25%-50% of the loan you are requesting? Remember a lender or investor will not finance 100% of your business.
Do you have a sound record of credit worthiness as indicated by your credit report, work history, and letters of recommendation? This is very important.
Do you have sufficient experience and training to operate a successful business?
Have you prepared a loan proposal and business plan that demonstrates your understanding of the business and your commitment to the success of the business?
Does the business have sufficient "cash flow" to make the monthly payments on the loan request?

The SBA offers a variety of financing options for small businesses. However, it rarely makes a direct loan to an individual or company. They are primarily a guarantor -- guaranteeing loans made by banks and other private lenders to small business clients. SBA guaranteed loans are obtained through private lenders.

Information is power! Make it your business to know what business information is available, where to get it, and most importantly, how to use it. Sources of information include:

· U.S. Small Business Administration
· Small Business Development Centers (SBDCs)
· Service Corps of Retired Executives (SCORE)
· Small Business Institutes (SBIs)

The ABCs of Borrowing MS Word or PDF
Loan Package Checklist MS Word or PDF
Short-Term Debt Financing MS Word or PDF
What's Your Business Worth MS Word or PDF
Suggested Format For Lenders Credit Analysis MS Word or PDF