Introduction
The SBA loan procedure is competitive, and lenders have a lot of options to choose from. Each year, thousands of borrowers experience their applications for loans stalled or outright refused, and in most instances, the business isn’t to blame. The business plan is:
A poor SBA business plan doesn’t have to have false information in order to be rejected. It simply must leave a lender with questions, numbers that lack supporting evidence, or a story line that could apply to any business, not just yours. Loan officers look at these documents and have a list of underwriting requirements that determine whether a file is accepted or rejected; one bad section can kill a file that is on the verge of being accepted.
The great news is that almost all of the flaws on this list are remedial – they can be corrected before you even submit. Here are the top five issues that we see in SBA business plans, what kind of red flags they raise and what you should do instead.
Mistake #1: Vague Use of Funds
All the lender knows from stating that you will use the loan for “business growth” or “working capital and expansion” is that you will use it for some kind of business growth or expansion. Language like this will make any SBA application stall in its tracks; it is expressing that you haven’t carefully considered how the capital will be used, and it gives the underwriter nothing to associate your funding request with.
Do not provide a summary; the lender wants to see a line-by-line breakdown. Your use of funds section should be similar to this, rather than one that’s too general:
- $60,000 – Leasehold improvements
- $25,000 – Equipment purchase
- $15,000 – Marketing campaigns
Mistake #2: Unrealistic Financial Forecasts
One of the more frequent issues that make an otherwise good application flag is when revenue is overstated and expenses are understated. Your projections are routinely compared by lenders to established industry norms to view a high volume of these plans. Whether this section of the plan reads well or not, if the numbers don’t match what you know to be typical for your industry, location, and business size, the disconnect is the red flag.
Mistake #3: No Market Research
Anyone can declare that there is a demand, but a strong business plan will prove it. It proves it. Lenders want to see statistics, competitor analysis and industry reports to support your statements regarding the size of the market, customer demand and how you compare to the competition already in your area.
Mistake #4: Weak Management Section
Lenders aren’t just assessing your business idea. They are testing to see if the people involved in it can actually make it happen. Even if all other parts of the plan are solid, lenders may take a dim view of your lack of industry experience or your inability to communicate your industry expertise, since the experience might not be obvious.
Mistake #5: Using a Template Without Customization
While generic templates may save you some time initially, it’s highly probable that an experienced lender will be able to see them right through. When the underwriter sees boilerplate language, projections that are “placeholder” and parts of the plan that are clearly not written for your business, it indicates only one thing – this plan was not designed to pass muster.
How Wise Business Plans Helps You Succeed
We eliminate these mistakes by:
- Conducting custom research for your industry and location.
- Building accurate, lender-approved financial models.
- Writing clear, compelling narratives that meet SBA standards.
Final Thoughts
With these five pitfalls avoided, your approval may be that much quicker – or your funding may get months delayed – and your first-round “yes” may have to wait until you get rejected. While none of these errors are difficult to correct when they are discovered, they are also easy to overlook when creating a plan without having experienced it in the past from the lender’s perspective.
Use SBA business plan professionals that understand exactly what lenders are looking for, and can fill in the holes in your business plan that an underwriter will see. When preparing a bank business plan, steer clear of errors that can significantly affect your likelihood of getting the loan and a professional business plan can be the quickest route from application to funded.
Schedule your free consultation today.
