SBA Business Plan Advice: How to Get Approved
If you want to be approved for an SBA loan you clearly need a business plan. But very importantly you need to understand what banks are thinking about when they decide to make a loan to an entrepreneur like yourself.
The number one thing banks are looking to do is to decrease their default rate or decrease the amount of entrepreneurs or business owners that they lend to that default on their loan and don’t pay back that loan. That’s the fear of the banker.
There are five ways that you can prove or show the banker or convince the banker that you are not going to default on that loan because once again, that’s all they care about. They want their money paid back with interest. So here are the five ways to convince bankers that you are going to be a good candidate and that you will pay back the loan eventually.
The first one is revenue streams or income. This will show the banker that you already have revenue streams or that you soon will have revenue streams that will be amply sufficient for you to pay the monthly interest and principle payments.
Secondly, you want to show the banker your credit history and public record ideally which shows that you are a person of good credit, that you have paid back loans in the past and that your company has paid back loans in the past if applicable. And that your public record is clean meaning that you don’t have a criminal record and that you are a good citizen.
The third way to convince a banker for an SBA loan is to show that your debt to net worth ratio is acceptable. A debt to net worth ratio that is low means that you have equity in your home or money in your bank account and that you’re just not highly leveraged in debt.
The fourth key thing used to convince bankers is simply location and that bankers for SBA and other loans would like to fund companies that are relatively close to them geographically. So you want to seek out a more local bank for your SBA loan.
The final thing is your business plan. The key with your business plan is to show the SBA bank loan officer that you have really thought through your business and have a solid business plan. For example, you want to show the banker that you’ve really thought through who your customers are. What are the specific wants and needs of those customers? What are the demographic and psychographic profiles of those customers? You want to show the banker that you really understand your market, that you’ve done a thorough industry analysis and you understand how big the market is and whether it’s growing or constricting and how that affects your business.
The banker wants to see that you’ve done a thorough competitive analysis, that you’ve looked at who your current competitors are and potential competitors going forward and what your strengths and weaknesses are related to those competitors.
The bank wants to make sure that you have a tight marketing plan and an operations plan and very importantly that you’ve through your management team plan and you have a management team or people in place that can execute on the business opportunity.
Finally, with regards to your business plan the banker will scrutinize your financial projections and your financial plan which is basically going to explain how much money you need, what the key uses of that money are going to be, and what revenues and expenses you expect will result from the bank financing. Importantly, the banker wants to make sure that you can very easily pay back the bank loan, the interest payments and the principle payments from those financial projections.
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