If you are a business owner, you understand the different financial hurdles that arise as you try to grow your business.
It's understandable, especially considering everything needed to keep a business up and running.
Thankfully, there are plenty of solutions to help small business owners with these challenges and the Small Business Administration (SBA) is one of them.
The SBA is a government agency that provides support for entrepreneurs. If you've been considering an SBA loan for your business, continue reading through this article to learn why a business plan is crucial for your application.
What Is An SBA Loan?
Guaranteed by the Small Business Administration, SBA loans offer a cushion for any challenge a small business might be facing. These loans are available to businesses as it can be difficult to secure financing through standard commercial lending means. Not only do they help people stay in business, but they generally offer lengthy repayment plans and much lower fees than your regular bank business loan.
Consider, for example, the 7(a) loan. The SBA has approved 8,669 loans for a total of $4.5 billion with an average loan size of $521,637. The 504 loans have approved 9,254 loans with a total approval amount of $9 billion and an average loan size of $995,029.
They help many stressed business owners get some much-needed sleep at night as they gain confidence their business will be able to tackle the obstacles ahead. You’ll find there are quite a few different SBA loans to choose from, including the brief list below.
7(a) Loan - For business expansion, purchasing equipment, and securing capital
Microloan - Purchasing business supplies and securing startup capital
CAPLine Loan - Used for cyclical or short-term capital needs
504 Loan - One of the most common for buying, improving, or repairing land, machinery, buildings, and more
It might sound cliche, but it's okay to ask for a helping hand, as an SBA loan can soften some of the financial blows you're bound to endure. Out of the list above, 504 and 7(a) loans are one of the most common for many small businesses, and we'll expand on the specifics of that SBA loan down below.
Elements of an SBA Loan Business Plan
Before getting into the requirements, you need to know that an SBA Loan is still obtained from the bank but is backed by the SBA. There are different types of SBA loans, also. For example, through the 7(a) loan program, the SBA backs up, or guarantees, up to 85% of any loan $150,000 or less and up to 75% of loans over $150,000.
When applying for a loan, unless it is a microloan or line of credit, the bank will usually ask for a business plan. Having a strong business plan available will greatly increase your chances of approval.
If you're new to operating your own business, take a deep breath! It's understandable that topics like this can feel like an overwhelming amount of new information, but the process of putting a solid business plan together is a little easier than you might expect. Below is a list of the most important information you want to include in your business plan for your SBA 504 loan application.
An executive summary discussing the overview of your business
Detailed company description that tells them what your business is and what it aims to provide
Analysis of your target market and its short to long-term outlook
How you plan to manage and operate your business
What you plan to sell
A marketing and sales plan that details how you’ll acquire and retain satisfied customers
One of the most thorough sections of your business plan should be your financial projections, giving the reader at least 3-5 years of data to review
Lastly, the appendix section includes any supporting documents for your business plan, such as permits, references, credit history, legal documents, etc.
These points are all suggested by the SBA, itself, so you don’t have to stress about what you need to include in your business plan.
Each type of SBA loan is structured to be utilized for various use cases, so they are a great way to ensure your business continues to flourish.
The Bottom Line
You don't have to face all the challenges of growing a small business alone. There are many different options for business owners to source financial help, hopefully mitigating any more unwanted gray hairs in the process. Don't hesitate to look into SBA loans as a means to propel your business forward and keep browsing our website for the best tips and tricks on practical business planning.