A Successful Small Business Loan Strategy- part 2

If you have assembled the information referenced in the previous edition of Latin Business Today, you are almost there. 

 

The most difficult document required to secure funding for most small business owners, and perhaps the most important is Monthly Cash Flow Projections.  I suggest that you prepare a monthly cash flow projection and compare it with actual business results even if you do not intend to seek third party funding. That is the only way you will know that you are reaching your target. You may have to adjust your cash flow projections to be more realistic.

In the first part, There is No Free Lunch, but There Is a Strategy to Funding we covered information which will assist you in the process of accessing institutional capital.

We addressed documents to be presented to a loan officer items 1 through 3 below: 

1.  A Personal Financial Statement –(PFS)

  • Your Assets
  • Your Income 
  • Your Liabilities 

2.  Professional Resumes (Curriculum Vitae or CV)

3. Source and Use of Funds

Part two of two in securing a small business loan and documents requirements continued:

4. Executive Summary

A concise business plan that includes the corporate structure, the management team, the marketing plans, some history of the company, and financial projections – in only two or three pages.

The executive summary is a sales tool.  It should include the strengths of the business. The summary can include a list of attachments that support statements in the executive summary.

5.  Monthly Cash Flow Projections

These often require the assistance of a third party who has experience with the preparation of excel spread sheets. However, the input  for the cash flow must come from the management of the company.  The cash flow projections should include pre-opening costs, details of the cost of goods, percentages of profits, working capital needs and net operating losses and profits before taxes, depreciation and debt.

When you prepare cash flow projections DO NOT use actual calendar months of the year, but designate the months as pre-opening, 1st, month 2nd month etc. Also, provide footnotes or a schedule of assumptions on which the cash flow projections are based. Lenders will analyze the cash flow with great precision to determine if the working capital is adequate.

It is in the best interests of the borrower to be realistic and perhaps conservative in preparing the cash flow projections.  However, bear in mind that many lenders like to see a positive cash flow within one year, and in the case of loans with an SBA guarantee, they may require that there is a positive cash flow within 6 months.

 

SupportingDocuments Required with the Initial Loan Request

  1. ¨Two years of Tax Returns  – for the business and the borrowers
  2. ¨Interim financial statement for the business (P&L and Balance Sheet)
  3. ¨Schedule of Accounts Receivable – with aging
  4. ¨Schedule of all business debts – including payments due on each debt obligation
  5. ¨Copy of a business lease or a purchase contract, if applicable.
  6. ¨Verification of any special licensing requirements for the business
  7. ¨Franchise agreement, if applicable

Next- Supporting Documents Required for Loan Closing