The U.S. Small Business Administration (SBA) provides financial assistance through:
Investment Programs (SBIC Program)
Business Loan Programs
Disaster Loan Programs
Bonding for Contractors
The SBA itself is not a Direct Lender, rather financing is obtained from an SBA approved Lender (bank and non-bank)
and the SBA provides a loan guaranty (against payment default by the Borrower) to the Lender. The Lender pays a Loan
Guaranty Fee to the SBA during the term of the loan in exchange for the SBA Guarantee.
A business does not apply directly to the SBA. Rather, it has to apply at the offices of an approved third party lender
or program participant. The relationship is always between the SBA and the Lender, not between the SBA and the Borrower.
The SBA guarantee is not extended for the benefit of the Borrower, the guarantee is extended to induce the Lender to
make a loan to a business that it otherwise would not consider providing.
An SBA Lender can be either a bank or a non-bank financial company. SBA-approved lenders include commercial banks, savings and
loan institutions, credit unions and finance companies. There are three types of SBA approved Lenders qualifications:
Financial institutions just starting in the program or institutions that infrequenly submit applications may
submit a loan guarantee application for review to their local SBA office under the regular delivery program. The SBA conducts
a separate credit analysis and review of the
file and then notifies the lender of its decision (SBA review usually requires 10 business days).
Certified Lenders Program (CLP): approved by the SBA District Director after demonstrating that the credit
department has a satisfactory performance history with SBA, including the submission of complete and accurate loan
guarantee application packages and has an acceptable SBA purchase rate. The paperwork for application is reduced compared to
the regular delivery program (the SBA only reviews the lender's credit analysis) and CLPs receive a three-day turn
around from the SBA.
Preferred Lenders Program (PLP): approved by the SBA Associate Administrator of Financial Assistance
after a period of having attained CLP status, after which the SBA delegates loan approval (PLP lenders can approve an SBA
guaranty prior to first sending the application to the SBA for review), closing, and most servicing
and liquidation authority.
What is the advantage to financial institutions to become an SBA-approved Lender?
The guaranteed portion of the loan is saleable on an active secondary market which can provide liquidity.
The guaranteed portion of SBA loans has a lower risk-based capital requirement.
Can provide support for loans with less than optimal collateral coverage.
SBA Certified Development Company (504) loans can provide fixed asset financing for up to 90% of the project cost.
How does a financial institution become an SBA-approved lender?
The process to apply first requires a Resolution of the Board of Directors authorizing the institution to request
approval to become an SBA lender.
Formal letter of request to the SBA to be considered for approval.
The institution’s name, address, telephone number, and contact email address.
A copy of the institution’s Articles of Incorporation and by-laws certified by an appropriate officer.
Amount of the institution’s capital and additional paid-in capital.
A description of the institution's geographical area of operations.
A copy of the institution's credit policies and procedures, including loan origination, servicing, and liquidation, and
how originations would differ on loans made under the SBA’s loan programs as opposed to those made under the institutions
own underwriting criteria alone.
A copy of the most recent audited financial statements of the institution.
A copy of the resume of the key credit decision personnel, which would include analysts and members of the Loan
Committee.
A certification (written statement from the institution) indicating that the institution is not a financing subsidiary
which engages primarily in financing the operations of an affiliate.
A written statement as to why the institution is seeking SBA approval.
SBA Loan Programs
U.S. Small Business Administration Loan Guaranty Programs include:
Section 7(a) Loan Guaranty
Certified Development Company (504) Loan Program
Microloan 7(m) Loan Program
The Small Business Act specifies that the SBA shall not make or guarantee
loans for borrowers who are able to obtain credit elsewhere. The statute
defines credit elsewhere as
“the availability of credit from non-Federal sources on reasonable terms and
conditions taking into consideration the prevailing rates and terms in the
community in or near where the concern transacts business, or the
homeowner resides, for similar purposes and periods of time.”
Thus, the SBA will
guarantee loans only for applicants for whom the desired credit is not
otherwise available on reasonable terms from a nonfederal source. As a result, the SBA requires lenders to explain in a
borrower’s loan file why the borrower could not obtain credit elsewhere on reasonable terms.
Section 7(a) Loan Guaranty Program
The business must be domiciled within the United States and pay taxes in the United States.
The business must be an ongoing, for-profit operation.
The business must indicate how the receipt of the guaranteed financing will also benefit the local community
(the guarantee is by a U.S. federal government agency that is funded by taxpayer money and the purpose of the program
is that if the business thrives then the community thrives through jobs and the product or service). If the business is not going
to create additional jobs, retain jobs or assist in community redevelopment then it is
less likely to receive an SBA approval.
The business must be of a certain size based on either the Number of Employees or Gross Receipts.
SBA Small Business Size Standards
Most types of businesses are eligible to apply for SBA 7(a) financing.
As indicated above, the Small Business Act and 7(a) program regulations give lenders
discretion to determine which borrowers cannot obtain credit elsewhere
and thus require an SBA guarantee. SBA’s primary guidance for the 7(a)
program outlines six reasons lenders can use to substantiate that a
borrower cannot obtain credit elsewhere.
The business needs a longer maturity than the lender’s policy permits.
The collateral does not meet the requirements of the lender’s policies.
The lender’s policies normally do not allow loans to new businesses or
businesses in the applicant’s industry.
Any other factors relating to the credit that, in the lender’s opinion, cannot
be overcome without the guarantee.
The requested loan amount exceeds the lender’s legal lending limit or policy
limit on the amount it can lend to one customer.
The lender’s liquidity depends upon selling the guaranteed portion of the loan on the secondary market.
Most Lenders assess "availability of credit elsewhere" against their own underwriting standards and the most often
cited the reasons for requiring an SBA guarantee are:
Borrower’s need for a longer maturity
Lack of collateral
Age or type of business
Essentially, if a borrower does not meet the requirements of the lender’s conventional
loan policy, the lender will deny the loan request or require an SBA guarantee.
SBA 7(a) Loan proceeds can be used for eligible business purposes only:
Working Capital (loan term 5 - 7 years)
Equipment acquisition (loan term 7 - 10 years)
Business acquisition (loan term 10 years)
Facilities / real estate acquisition
New facilities construction
Inventory financing
Leasehold improvements (loan term 7 - 10 years)
Real estate mortage refinancing
Business debt refinancing
Loan terms from 5 years to 7 years (Working Capital; may not excedd 7 years) to 25 years (Real Estate and Equipment Finance)
Interest rate structure may be either Fixed interest rate or Variable interest rate.
SBA 7a Loan Guaranty Program Interest Rate Structure
Interest rates are negotiated between the borrower and the lender but are subject to SBA maximums, which are pegged
to the Prime Rate or the SBA optional peg rate, which is a weighted average of rates the federal government
pays for loans with maturities similar to the average SBA loan.
Interest rates may be fixed or variable. Fixed rate loans of $50,000 or more must not exceed Prime Plus 2.25%
if the maturity is less than 7 years, and Prime Plus 2.75% if the maturity is 7 years or more.
For loans between $25,000 and $50,000, maximum rates must not exceed Prime Plus 3.25% if the maturity is
less than 7 years, and Prime Plus 3.75% if the maturity is 7 years or more.
For loans of $25,000 or less, the maximum interest rate must not exceed Prime Plus 4.25% if the maturity is
less than 7 years, and Prime Plus 4.75%, if the maturity is 7 years or more.
The SBA charges lenders a guaranty fee and a servicing fee for each loan approved (and actually disbursed).
The amount of the fee is applied on the SBA guaranty portion of the loan (not the full disbursed amount).
The lender may charge the upfront guaranty fee to the borrower after the lender has paid the fee to the SBA and has
made the first disbursement of the loan.
The lender's annual service fee to SBA cannot be charged to the borrower.
SBA fee structure:
For loans of $150,000 or less, a 2.0% guaranty fee will be charged. Lenders are again permitted to retain 25%
of the up-front guarantee fee on loans with a gross amount of $150,000 or less.
For loans more than $150,000 but up to and including $700,000, a 3.0% guaranty fee will be charged.
For loans greater than $700,000, a 3.5% guaranty fee will be charged.
For loans greater than $1,000,000, an additional 0.25% guaranty fee will be charged for that portion greater
than $1,000,000. The portion of $1,000,000 or less would be charged a 3.5% guaranty fee. The portion greater than
$1,000,000 would be charged at 3.75%.
The servicing fee for all 7(a) loans is 0.494% of the outstanding balance of the guaranteed portion of the
loan (which remains in effect for the term of the loan).
The SBA will guarantee a certain percentage of a 7 (a) loan based on the loan amount. Typically, the SBA will
participate in loan requests of up to $2,000,000. The SBA would guarantee up to 75.0% of the loan ($1.5 miilion), and
will provide a 75% guaranty on loans of $150,000 or more; and will provide an 85.0% guaranty for loans of $150,000 or less.
SBA 7(a) Loan Guaranty Program
The SBA has informed lenders that the SBA portion of a real estate financing / refinancing may no longer be in a second
lien position.
There are 2 Standard 7a Loan Guaranty Processing Centers (LGPC):
6501 Sylvan Road 262 Black Gold Blvd
Citrus Heights , CA 95610 Hazard, KY 41701
Phone: (916) 735-1515 ext. 4368 Phone: (606)436-0801 Fax: (916) 735-1554 or Fax: (606)435-2400 Fax: (916) 735-1680
504 Loan Guaranty Program
The Applicant Must be a "small business" as defined by the SBA and meet owner occupancy requirements. Under the 504
Program, the business qualifies as small if it does not have a tangible net worth in excess of $7.5 million and does not
have an average net income in excess of $2.5 million after taxes for the preceding two years.
Funds received under the 504 Loan Program is restricted in usage for the acquisition financing, construction,
upgrade / renovation or refinancing of real estate or long-term fixed assets (machinery and equipment purchases).
Property must be owner-occupied.
Minimum 10% downpayment from the principals (however, that is the advantage of the program as most commercial real estate
acquisitions usually require 25% to 35% down payment).
The interest rate on 504 loans is pegged to an increment above the current market rate for corresponding
5-year and 10-year U.S. Treasury issues.
The SBA 504 loan program can also be utilized as a financing option for franchisees (acquisition).
Loans cannot be made to businesses engaged in speculation or investment in rental real estate.
Generally, the project assets being financed are used as collateral. Personal guaranties of the principal owners are
also required.
The business must indicate how the receipt of the guaranteed financing will also benefit the local community
(the guarantee is by a U.S. federal government agency that is funded by taxpayer money and the purpose of the program
is that if the business thrives then the community thrives through jobs and the product or service). If the business is not going
to create additional jobs, retain jobs or assist in community redevelopment then it is
less likely to receive an SBA approval. The SBA indicates that with regard to CDC / 504 loans the generally,
"a business must create or retain one job for every $50,000 provided by the SBA except for "Small Manufacturers" which have
a $100,000 job creation or retention goal."
CDC / 504 Loan Guaranty Program
Typical SBA 504 loan structure:
50% Senior Debt provided by the private financial institution.
40% Sub Debt provided by a Certified Development Company (CDC; funded by a 100% SBA-guaranteed debenture; junior lien).
10% equity contribution from the principals.
Certified Development Company (CDC) is a development company usually set up by a local municipal government in partnership
with local business groups and financial institutions. With regard to purely economic issues a CDC will assist with the
revitalization of commercial districts and also assist with long-term planning (non-commercial programs include housing for
low-to-moderate income families, operate child-care programs, provide literacy training, etc.). CDCs are usually funded
through grants and state funding and many operate with federal 501(c)(3) tax-exempt status. The SBA 504 loan program
is also sometimes referred to as the Certified Development Company Economic Development Loan Program.
The CDC will participate up to 40% of the loan to a maximum amount of $1,500,000 (the maximum SBA debenture). The SBA 504 portion can be amortized over 10 or
20 years terms with a fixed below-market rate. SBA 504 real estate financing is 20-year, fully amortized financing.
Please note: CDCs can go as high as $2,000,000 of SBA 504 financing for public policy or community development projects
and up to $4,000,000 for eligible manufacturing projects.
National Association of Development Companies (NADCO) www.nadco.org/
Patriot Express Loan Guaranty Program
The Patriot Express loan (which is part of the 7a Loan Guaranty Program) can be used for most business purposes, including start-up, expansion, equipment purchases,
working capital, inventory or business-occupied real-estate purchases.
Maximum loan size of $500,000 (the SBA has limited the number of loans above $350,000 to 2,000, through the year 2010, in order to focus
the loan program toward smaller loans).
Patriot Express maximum interest rates will range from Prime Rate + 225 bp to Prime Rate + 475 bp depending upon the
size and maturity of the loan. Interest rate structure may be either Fixed interest rate or Variable interest rate .
This is a 75% - 85% loan guaranty program: loans of $150,000 or less may receive a maximum guaranty of 85% and loans
in excess of $150,000 (up to $500,000) may receive a maximum guaranty of 75%.
Borrower eligibility is limited to businesses that meet SBA’s standard
eligibility requirements and that are at a minimum 51% owned by an individual(s) in one or more
of the following groups:
Veterans (other than dishonorably discharged).
Service-Disabled Veterans.
Active Duty Military service member participating in the military’s Transition Assistance Program
(TAP), which is applicable to potential retirees within 24 months of separation and to discharging
Active Duty members within 12 months of discharge.
Reservists and National Guard members.
Current spouse of above, widowed spouse of a service member who died while in service, or
widowed spouse of a veteran who died of a service-connected disability.
SBA Patriot Express Loan Guaranty Program
Community Express Loan Program
The Community Express Pilot Loan program (which is part of the 7a Loan Guaranty Program) was originally designed for minority-, women- and veteran-owned small businesses located
in low- and moderate-income areas identified under the SBA’s Historically Underutilized Business Zones (HUBZones) and
those communities identified as distressed through the Community Reinvestment Act (CRA).
In addition, to encourage small businesses start-ups, SBA also makes eligible loans of $25,000 or less for Community Express, regardless of where small businesses are located.
Community Express loans must meet the basic 7(a) loan criteria.
Maximum loan size of $250,000. Revolving lines of credit may have a maturity of up to 7 years.
Lenders are not required to take collateral for loans up to $25,000. Lenders may use their existing collateral policy
for loans from $25,000 to $250,000.
Lender must provide and ensure that the borrower receives appropriate technical assistance (T/A) but may use SBA’s Small
Business Training Network (SBTN) and/or other SBA T/A resources to fulfill T/A requirements. Lender must document
provision of T/A in loan file.
Community Express is a pilot program, under law its loan volume is capped: all SBA Pilot Programs are Limited to 10%
of the Number of 7(a) Loans. There have been some concerns by the SBA
with regard to predatory lending practices. In addition, loans originated through Community Express program have a 7%
default rate, the highest of all SBA loan programs, while the 7(a) loan program has an overall default rate under 3%.
SBA Community Express Loan Guaranty Program
Microloan 7(m) Program
The Microloan Program provides very small loans to start-up, newly established, or growing small business concerns.
Under this program, SBA makes funds available to nonprofit community based lenders (intermediaries) which, in turn, make
loans to eligible borrowers.
Maximum loan amount of $35,000.
Maximum term allowed for a microloan is six years.
Under the terms of the Microloan Program, the SBA allows each intermediary lender to have its own lending and
credit requirements. However, as a general rule collateral and the personal guarantee of the business owner is required.
Borrowers must also enroll in a business based training and technical assistance program provided by the financial institution.
SBA Microloan Program
SBA Loan Underwriting / Credit Analysis
The relationship and guarantee that the SBA provides is between the SBA and the Lender and not between the SBA and the
applicant / borrower. The Lender must utilize generally accepted credit analysis standards and guidelines to qualify
the loan. The fact that there is going to be an explicit guarantee does not in of itself qualify the loan nor should it
influence the Lender to extend the loan. Rather, the
business must clearly demonstrate the ability to service and repay the loan.
The first analysis of the application is to determine if the applicant would qualify for a non-SBA guaranteed loan.
The SBA does not deny approval for a SBA Guaranty Loan solely due to lack of collateral.
All owners of twenty percent (20%) or more of the business are required to personally guarantee SBA loans.
A business / individual that has recently been charged with having committed a felony or defaulted on any previous government debt
is ineligible for SBA financing.
Within the 7(a) program, there are several delivery methods—including
regular 7(a), the preferred lender program (PLP), and SBAExpress. Under
the regular (nondelegated) 7(a) program, SBA makes the loan approval
decision, including the credit determination. Under PLP and SBAExpress,
SBA delegates to the lender the authority to make loan approval decisions,
including credit determinations, without prior review by SBA. The
maximum loan amount under the SBAExpress program is $350,000 (as
opposed to $2 million for other 7(a) loans). The program allows lenders to
utilize, to the maximum extent possible, their respective loan analyses,
procedures, and documentation. In return for the expanded authority and
autonomy provided by the program, SBAExpress lenders agree to accept a
maximum SBA guarantee of 50 percent.
SBA Loan Secondary Market
Lenders are permitted to sell the guaranteed portion of 7(a) loans on the secondary market pursuant to 13 C.F.R. Part
120, Subpart F.
The secondary market for small business loans declined substantially after the development of the credit crisis in
the thrid quarter 2008, On March 16, 2009, the U.S. federal government indicated that as part of the
American Recovery and Reinvestment Act economic stimulus plan
the Treasury Department would purchase securities backed by the guaranteed portions of 7(a) loans packaged since July 2008 through December 31,
2009.
In the United States there is a private on-line exchange that allows business owners, lenders (who may have originated a
commercial loan but are not going to fund it), business brokers, loan packagers and franchisors to
present loans to lenders for potential SBA financing (primarily 7a loans).
Small Business Operations
Business Licensing
In the United States certain types of businesses need to be licensed, certified or registered (includes but is not limited to):
Asbestos Safety Technician
Auctioneer
Child Care Centers
Cigarette & Motor Fuel Seller
Employment Agency including Temporary Employment, Nurse Registry, Home Health Aid, etc.
Funeral Home
Hair Salon / Barber / Cosmetology
Health Care Facility / Service
Home Improvement Contractors & Landscapers
Lead Hazard Abatement Contractor
Limousine or Taxi Service
Liquor Sales
New Home Builder Registration and Renewal
Pesticide Applicator / Operator
Private Investigator
Public Accountant
Real Estate Agent / Appraiser
Restaurants and Food Preparation for Retail Sale
Solid Waste Transporter
Telemarketing Companies
Some municipalities also have zoning regulations against the operation / location of a business within a residential
area. If your business operates in violation of them, you could be fined or shut down. (Consult an attorney)
Some states also have restrictions against certain products being manufactured / fabricated in in or at a residential
property. Most states restrict the home production of fireworks, drugs, poisons, explosives,
sanitary or medical products and toys. Some states also prohibit home-based businesses from making food, drink or
clothing. (Consult an attorney)
Business Legal Structures
Types of business legal structures
Sole Proprietorship - A business owned and managed by one individual who is personally liable for all business debts and obligations.
Partnership - Two or more people share ownership of a single business.
Corporation - A legal entity owned by shareholders.
S Corporation - A special type of corporation created through a tax election. An eligible domestic corporation can
avoid double taxation (once to the shareholders and again to the corporation) by electing to be treated as an S
corporation.
Limited Liability Company (LLC) - A hybrid-type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership
Limited Liability Partnership (LLP) - Usage of this option may be restricted in some states to licensed
professionals such asaccountants, lawyers, and architects.
Not for Profit - An organization engaged in activities of public or private interest that are motivated by making a profit. Some non-profits are exempt from paying federal taxes.
Cooperative - A business or organization owned by and operated for the benefit of those using its services. Cooperatives are not a legal structure.
Federal Employer Identification Numbers (EIN) are required by all businesses with employees, including sole
proprietorships, or if you operate as a corporation or a partnership.
Employer ID Numbers (EINs), Internal Revenue Service
How to Apply for an EIN, Internal Revenue Service
In order to open a bank account, a corporation and/or LLC must ususally provide their bank with a copy of the entity's
articles of organization (also known as a certificate of formation in some states), and the acknowledgement / approval of
incorporation from the Department of State of the respective state in which the business is domiciled. Some banks may also
require that the entity have an official seal.
Patents & Trademarks
If you are manufacturing / fabricating a product that you originally designed then it worth the effort, time and expense
to have the design patented and then engage a service that monitors the patent. You must also make sure that there are no
unauthorized distributors of your product, especially if those that are selling the product at the retail or wholesale level
at prices lower than your authorized distributors.
E-Verify
E-Verify is an Internet based system operated by the Department of Homeland Security (DHS) in partnership with the
Social Security Administration (SSA). The service is free and voluntary and allows participating employers to
electronically verify and confirm the employment eligibility (legal working status) and the the validity of the
Social Security Number of their newly hired employees.
Another challenge is getting customers to pay your invoice in a timely manner and that their payment is good. When
bounced check payments are too small for Small Claims Court or for a collection agency then one may have to contact the
local District Attorney's office. One may also sign on with (for a fee) a private check service program that will approve
and guarantee payments by check.
Contrary to popular belief, the U.S. Department of Labor indicates that there is no federal law that requires a
coffee break or a lunch break. However, it is really good operating policy to provide one but each company is free to
regulate the time provided for such breaks.
Health Care
Self-mployed persons and their employees may have a Health Savings Account (HSA) as long as they are enrolled in a
qualified high deductable health plan (HDHP) with a minimum deductable of $1,100 for individuals and $2,200 for
families, and are not covered under another health plan (including Medicare). An employee's contributions are
tax deductable and the unused balance in the HSA at the end of
the year may be rolled over into the next calendar year. There is no requirement that an employer match an employee's
contribution into their HSA.
How to Market a Business
One of the most important functions of a business is finding customers. How do you market a business effectively,
cost effectively and find customers? Secondly, how do you get the customer to agree to placing an order or hiring
the service and then pay for it?
Select specific markets (market segmentation) to serve, which is the same as asking who are your target customers? The product or service may
be applicable to several different types of businesses and this requires very good research. Do you also need to
go outside of your immediate geographical area? Can you discern any type of change in attitudes or developing trends (for
instance, people trying to eat healthier food) that you can serve?
To connect with a customer figure out how to satisfy their needs. That means taking a good, long look at them and
determine what their competitive advantage(s)
are and how does your product or service assist them to meet their objectives. Essentially: how are you going to help
tham make money or solve a problem? Again, are there change in attitudes or developing trends that you can assist
them address? Do you need to tailor your company's product offerings or service,
prices, or distribution to accommodate the customer? Admittedly, it is very difficult to determine
needs which currently are not being met in the market place but that is the key to success.
What are some of the most effective and cost effective marketing tools to create name awareness?
Mail out glossy postcards.
Distribute descriptive handouts.
Have a party on the premises of the business.
Direct cold calling.
Website that is correctly coded for "keywords" relative to the business; The site should also be used for
brand building and for informational purposes.
Guerilla marketing, which sometimes may mean activities that are not actually legal or may pose a threat
to public safety.
The purchase of mailing lists from list brokers, magazines, or other companies can be fairly expensive, especially after
factoring in the cost to contact the persons / companies on the list.
Some traditional texts on marketing always refer to the Marking Mix
Products and Services - narrow product line,
developing a highly specialized product or service or providing a
product-service package containing an unusual amount of service
Promotion - high quality salesmanship vs. bulk advertising
Distribution - the need to sell through distributors or manufacturers' agents
Pricing - price levels and/or pricing policies requires experience of actually selling the product or service
Physical location is very important: high traffic and visibility are critical for certain types of services
and products. However, location is less of a concern for products or services that customers are willing to go out of their
way to locate or the business sells on-line. Secondly, there is an issue of cost: the greater the traffic and
visibility (for instance, a shopping mall) the higher the rental expense.
Good customer service is essential to retaining customers. Once you have a customer make sure that you are available by
telephone, listen carefully to what they are saying and provide a rapid response to questions or requests.
It is very important to know who your competitors are and what are their strategies. What does it appear that they are
doing correctly or incorrectly and what can you learn from that? How do / can you serve customers better than the competition?
How to Write a Business Plan
Do not confuse a Business Plan with a Financing Proposal. The Business Plan is the outline of how the business
will be organized, what the goals are, what activities will engaged in and carried out in order to achieve those goals,
and how the business wil be managed and operated. The Financing Proposal is prepared for a potential lender and it
includes the Business Plan and then indicates
the amount of financing that is being sought, how it will be utilized and how it will be repaid. The Business Plan
is written before the business starts or is entering a new market or product line. The Financing Proposal is always written
after the Business Plan.
There are some general guidelines but a Business Plan always has to customized for the specific business functions
and specific business objectives. Please note with regard to the writing style of the plan: leave out the superlatives
and most adjectives.
I. Cover Page
Provide the company's name, address, and contact information along with owner name(s) and contact information for
the primary contact.
II. Table of Contents
I. Cover Page
II. Table of Contents
III. Executive Summary
IV. Company Description
V. Management
VI. Product or Service
VII. Industry Analysis
VIII. Market Analysis
IX. Organizational Structure
X. Financial Condition / Statements and Projections
XI. Addendum (Supporting Documentation)
III. Executive Summary
Summarizes the Business Plan in two pages or less and provides basic information about the company.
IV. Company Description
What does the company do?
Description of the product(s) and / or service(s) of the company.
Location, physical operation and / or facilities of the company (leased or owned).
Brief history of the company and idea behind or reason for starting the operation.
Legal structure of the company.
Owners and personnel of the company.
How was the company initially capitalized to start-up operations?
What are the goals of the company and does it fit into a time frame?
Is there any required licensing, bonding, permits, insurance, zoning, government regulations, patents, trademarks,
copyrights? How was this researched and how has it been handled?
V. Management
Who are the key personnel and what is their background and qualifications?
What are their duties / function?
VI. Product or Service
An in-depth analysis of the product or service:
What does the product or service do?
How is it manufactured or provided?
What tools or equipment is necessary to complete the product or service?
Are outside suppliers necessary?
How is the product or service priced?
If other components or services are necessary to complete the product or service how are they sourced and what is the cost?
How is the product or service distributed?
How is the product or service warranted or serviced once it is sold?
What differentiates the product or service from similar products or services?
VII. Industry Analysis
Where does the product or service fit into the world?
VIII. Market Analysis
Who are the customers? (location, size, description)
What is the existing demand for the product or service and what is the forecasted demand?
How are customers located, contacted, marketed to?
Is there a pricing policy for different types of customers?
How is the company, product or service promoted or advertized?
Who are the competitors? (location, size, description)
How easy or hard is it for other competitors to enter the industry?
Is it possible to team with a dissimilar or similar company to sell the product or service?
IX. Organizational Structure
How many employees are required?
What skills are necessary?
What are employee / personnel policies?
How much inventory is necessary and how will it be utilized and valued?
Who are the major suppliers and what is their condition, service quality and reliability?
What are the terms that suppliers extend?
What is the company's credit policy?
Does the company rely upon outside attorney, accountant, payroll, insurance agent, and advisory services?
X. Financial Condition / Statements and Projections
Initial capital investment amount and source.
Start-up expenses including inventory purchase, tools, equipment, rent, marketing.
Year-to-date income statement and balance sheet.
Previous year(s) tax returns.
Profit and loss projection (Income Statement) on a monthly basis for the next 12 months (including a detailed
explanation of assumptions used to develop the projection).
Cash flow projection on a monthly basis for the next 12 months indicating how and when cash will flow
in and out of the business (including a detailed explanation of assumptions used to develop the projection).
Projected balance sheet within 12 months.
XI. Addendum (Supporting Documents)
Incorporation / Articles of organization documentation.
Personal resumes for owners and management.
Copies of certification of the personnel related to the ability / qualifications for manufacturing the product or providing the service.
Letters of reference<./li>
Personal financial statements from all principals.
Contracts and/or letters of intent from suppliers and / or customers.
Copies of leases, licenses, permits, or any other legal documents.
As indicated above, a Financing Proposal would include a section titled Financing Request, which would be inserted
perhaps just after the Executive Summary. The proposal would cover the amount requested, an accurate estimate of the rate and terms,
collateral (if any), how the loan will be utilized, how the loan would be repaid, and the owner's equity contribution
to the company (to demonstrate that the principal is also willing to risk their own funds / assets). A loan applicant's
chance of approval increases substantially with the submittal of a concise plan rather than just assembling documentation
and then placing the financial institution in the position that they have to figure everything out on their own
Bank Loans
Some of the key issues that a small business owner must keep in mind when obtaining a loan from a bank is that:
Bank loan documentation usually includes wording indicating that the granting and / or renewal of the loan is "at
the discretion of the bank". This means that the bank
can decide to call the loan (the loan is now due and the entire outstanding balance must be repaid in full) either at
maturity or even while the loan is outstanding. It does not matter whether the borrower has made all monthly payments
on time and in full.
Most small business loans also require that the owner / borrower (an any other borrowers) sign a personal
guarantee. This means that if there is a default by the small business borrower then the personal assets (personal
residence, personal belongings, bank accounts, insurance policies) of the business
owner can also be sought by the bank for the full repayment of the loan.
If there is more than one business owner then each party must sign a joint and several liability agreement.
This means that in the event of a default the bank may pursue all owners / partners or it may just pursue the one with
the most assets.
The spouse of a small business owner may also have to sign a Spousal Consent Agreement. This means that the spouse of the
small business owner is agreeing to the loan and the bank's ability to pursue any jointly-owned assets in the event
of a default.
Alternative Financing
Merchant account cash advance services provide financing to small businesses and obtain repayment from from the
merchant's monthly credit card (Visa, MasterCard, American Express and/or Discover) dollar sales amount. The cash advance
company usually enters into an arrangement with the credit card processing service to have the amount collected directly.
Typically, there is no fixed payment schedule. Rather, the monthly payment includes a premium, which equates to an interest
cost of money. The cash advance company usually advances a percentage of the monthly credit card processing average
balance (there is usually a minimum monthly average requirement). The advance term is usually six months to one year, and
can be extended again as long as the first advance was paid as agreed. The advantage to the business owner is that the
application requirements are low: no tax returns, no financial statements, no application fees, just copies of the
monthly report from the credit card transaction processors. The advantage to the cash advance company is that the premium
charged with the monthly payment is substantial, usually in excess of commercial credit card rates and certainly higher
than traditional loans from a financial institution. The largest company in the industry is AdvanceMe (a wholly owned
subsidiary of Capital Access Network), and the industry as a whole advances just under $1 billion per annum to
U.S. businesses.
Chamber of Commerce
A local or regional chamber of commerce can assist all size and type of businesses with locating customers and suppliers,
services directory, licensing and tax issues, local promotions, partnerships, advice and support, and available resources.
Directory of U.S. State, Regional, County and City Chambers of Commerce
SBA Small Business Size Standards
