Applying for an SBA loan for your business requires preparation. You need to gather paperwork not only on your personal finances but on your business history and your projections for the future.
For most SBA loans, you’ll need to put together a business plan—one that shows how funds will be used and how the business will repay the loan over time. While this is not too different from a traditional business plan, there are some important details that you’ll need to pay attention to.
Here’s what you need to know about SBA business plans and how you can maximize your chances for approval.
What is an SBA loan?
SBA loans are loans that are issued by banks and credit unions, but backed by the US Small Business Administration—the SBA. That means that if you default on your loan, the government helps repay the bank that issued the loan.
The SBA requires personal guarantees from anyone that owns at least 20% of the business. This means that when you get an SBA loan, you are putting your personal assets on the line in the event that your business can’t repay the loan.
SBA loans are also typically targeted at businesses that have at least 2 years of history and strong financials. If your business is a startup or is struggling, an SBA loan may not be the right fit for you.
Despite the personal guarantee requirement, SBA loans are a popular way for small businesses to fund growth and expansion. For more on SBA loans, read our complete guide.
Why you need a business plan for SBA loans
SBA loans require a good amount of documentation on both your business and your personal finances. You’ll need to pull together your past tax returns, bank statements, and various application forms depending on the type of SBA loan you apply for.
Beyond gathering information about the past, the bank that is issuing the loan is going to want to know about the future of your business. They’re going to want to see how the loan is going to get used, and that your future cash flow projections indicate that your business will be able to afford loan payments.
That’s where an SBA business plan comes in. In addition to all the other documentation required for the loan, you’ll need to produce a business plan to accompany the rest of the loan application.
Not only will your business plan describe your business to your lender, but it will also have the financial projections that the bank is going to need to help determine if you qualify for the loan.
How long does an SBA business plan need to be?
The SBA doesn’t have an official recommended or required business plan length. As a general rule of thumb, though, you should try and make your business plan as short and concise as possible. Your business plan is going to be read by a bank loan officer and they are going to be less than excited about the prospect of reading a 50-page business plan.
If possible try and keep the written portion of your business plan between 10-15 pages. You’ll then also have your financial forecasts that will take up several pages.
A great way to start your business plan is to start with a simple, one-page business plan that provides a brief and compelling overview of your business. A good one-page plan is easy to read and visually appealing. Once you have your one-page plan, you can expand on the ideas to develop your complete written business plan and use the one-page plan as your executive summary.
Loan officers will appreciate a concise overview of your business that provides the overview they need before they start taking a look at your financial plan and your complete business plan.
How to write a business plan for your SBA loan application
Like any good business plan, a business plan for an SBA loan will cover the fundamentals:
1. Executive summary
A one-page overview of your business plan and how much money you’re looking to borrow.
2. Business opportunity
A description of the business you’re in and the problem you solve for your customers.
3. Market analysis
An overview of your target customers and your competition.
4. Sales & marketing plan
A summary of how you sell your product or service and how you market to your target customers.
5. Financial forecast
Anywhere from 3 to 5 years of financial projections, including sales, expenses, and cash flow.
Check out our complete business plan outline to ensure you have everything you need to write your plan.
How to improve your chances of being approved for an SBA loan
Beyond the basics, though, your SBA business plan needs to include a focus on the loan you are applying for and how that will impact your business financially. Make sure to include the following in your financial plan to increase your chances of success with your lender:
In your executive summary, be sure to document how much money you are asking for. It’s best to put your number out upfront rather than trying to bury it deep within your business plan.
The specific terms of SBA loans are negotiated between the borrower and the lender. However, most SBA-backed loans have a maximum loan amount of $5 million while SBA Express loans have a maximum loan amount of $350,000.
Cash flow forecast
Be sure to include the loan in your cash flow projections. Show when you anticipate receiving the loan and how that will impact your finances over time. Your cash flow forecast will also show loan payments for the life of the loan. Having this prepared upfront will not only increase the chances of your application being approved but will make it much easier to manage the loan after you receive funding.
You’ll also want to show the loan on your projected balance sheet as well as how the loan gets paid down over time. The money that you owe will show up on your balance sheet as a liability while the cash that you received from the loan will show up as an asset. Over time, your forecasted balance sheet will show that the loan is getting paid back. Your lender will want to see that you have forecasted this repayment properly.
Profit & Loss forecast
Your P&L should include the interest expenses for the loan and show how that will impact your profitability in the coming months and years.
Use of funds
In addition to your financial forecasts, you should also include a description of how you plan to use the loan and what aspects of your business you will be investing in. Some SBA loans are specifically for expanding export businesses or for funding real estate transactions, so make sure your use of funds description is appropriate for the loan you are applying for.
Increase your chances of success with a business plan
A good SBA business plan will increase your chances of success with your lender. Of course, you’re going to also need the required assets for the personal guarantee and your business is going to need to be in good shape overall. But, a business plan that clearly explains your business and has solid financial projections will help your bank decide whether they will issue an SBA loan to you.
If you’re struggling to put together a business plan for an SBA loan, you may want to explore a business planning tool like LivePlan. With LivePlan, you get step-by-step guidance to develop a beautifully designed, SBA-approved business plan that provides everything investors need to evaluate your business.