All, this is the slideshow I presented at today\'s (September 8) meeting.
In brief summary, it\'s an outline I made of the Business Plan, followed by some common and some less so common documents I tend to include with the Plan. These by no means represent all the content, rather a small, but diverse taste.
The last couple pages contain SBA loan information (fyi: the SBA considers businesses with $5M or less in annual gross revenue as a small business)
1. The Business Plan
Business plan – a written summary of an entrepreneur’s proposed business venture, its
operational and financial details, its marketing opportunities and strategy, and its managers’ skills
and abilities. (Typically 25 - 50 typewritten pages.)
I. Executive Summary (brief; not to exceed two typewritten pages; write last)
A. Company name, address, and phone number
B. Names, addresses, and phone numbers of key people
C. General description of the business
D. The market for your service
E. Strategic actions to make your firm a success; your niche
F. Managerial and technical experience of key people
G. Financial needs (dollar amounts), how the money will be used, and plan for repayment
II. Detailed Business Plan
A. Industry Analysis
1. Industry background/overview
2. Trends
3. Future outlook
B. Background of your business
1. Brief history of the business
2. Current Situation
C. Your business
1. Detailed description
a) Mission statement
b) What makes you unique; your competitive advantage(s)
c) How do you create value for others
2. d) Key factors for success (i.e., price competitiveness, quality/style of
service, technical abilities, etc.)
D. Market Analysis
1. Potential buyers for your services (be specific)
2. What is their motivation to do business with you
3. How many customers does the market contain (how large is the market)
4. Potential annual purchases/services in your market
5. What is the nature of the buying/business cycle
6. Specific target market – what do you know about the potential customer you
are likely to sell to in your geographic area
a) What are the service features that influence your customer
b) What, if any, research supports your conclusions
7. Pricing Strategies
a) Cost structure – fixed and variable
b) Desired image in market
c) Your price versus competitors prices
8. Advertising and promotion strategies
a) What media are most effective in reaching your target audience
b) Media costs
c) How will you generate publicity for your business
9. External market influence. How will each of the following external forces affect
your service
a) Economic factors
(1) Inflation
(2) Recession
(3) High or low unemployment
(4) Interest rates
b) Social factors
(1) Locational demographics
3. (2) Income levels
(3) Social attitudes
c) Technological factors influencing your business
E. Competitor analysis
1. Describe each of the following and how they influence your success
a) Existing competitors
(1) Who are they
(2) Why do they get business now
b) Potential firms who might enter the market
(1) Who are they and when and why might they enter the market
(2) What would be the impact on your target market segment if
they enter
4. c) Strengths and weaknesses of each key competitors business
F. Strategic Plan for your business
1. Core competencies
2. Market position and image
3. SWOT analysis
a) Strengths
b) Weaknesses
c) Opportunities
d) Threats
4. Business strategy
a) Cost leadership
b) Differentiation
c) Focus
G. Specifics of your organization and management
1. How is your business organized
a) Legally (i.e., S corporation)
b) Functionally
2. Who are the key people in your organization
a) What are their backgrounds, and what do they bring to the business
that will enhance the chance of success
b) Resumes of key managers and employees
c) Organizational chart
H. Financial plans
1. How much money do you need to make your business a long-term success
2. Create a budget. Show the investor how much money you need, why you need
it, and how and when you plan to generate revenues from operations
3. Have a realistic projection of costs of operations
a) Labor
5. b) Materials
c) Equipment
d) Marketing
e) Overhead
f) Other
4. Present actual and projected balance sheet and income statements
5. Prepare a breakeven analysis
6. Prepare a ratio analysis
7. Create cash flow projections
I. Strategic action plan
1. Clear mission statement for your business
2. Specific performance goals and objectives
3. Restatement of your production and marketing strategies
4. How these strategies will be converted into operation action plans
5. What control procedures you plan to establish to keep business on track
J. Loan/buyout proposal
1. Loan/buyout purpose
2. Amount requested
3. Cash out schedule
4. Timetable for implementation
6. 2010 Projected Income Statement
Ordinary Income/Expense
Income
Project Revenue 4,000,000.00
Reimbursed Expenses 800,000.00
Total Income 4,800,000.00
Gross Profit 4,800,000.00
Expense
Monthly Payments/Services
Rent 120,000.00
Utilities 12,000.00
Telephone and Fax 16,000.00
Utility Repairs 7,000.00
Alarm 1,000.00
Drinking Water 2,500.00
Recycling 1,000.00
Trash 1,500.00
Cleaning/Janitorial 8,000.00
Records Management 1,000.00
Payroll Administration 2,000.00
401K Administration 2,500.00
Total Monthly Payments/Services 174,500.00
Computer/IT
Computer Equipment 25,000.00
Computer Software 15,000.00
I/T Consulting 15,000.00
Software Licenses 40,000.00
Plotter Lease 4,000.00
Printer/Copier Lease 6,000.00
Printer Per Copy Cost 6,000.00
Total Computer/IT 111,000.00
Insurance
Health 95,000.00
Liability 38,000.00
Business Owners 1,500.00
Worker's Comp 9,000.00
Total Insurance 143,500.00
7. Professional Fees
Accounting 9,750.00
Legal 12,450.00
Taxes 1,500.00
Sub-Consultants 22,000.00
Total Professional Fees 45,700.00
Other
Office Supplies 10,000.00
Lunch and Learns 5,000.00
Meals 2,500.00
Entertainment 2,500.00
Local Travel 2,500.00
Employee Reimbursables 25,000.00
Dues/ Subscriptions 10,000.00
Books & Materials 5,000.00
Office Repairs 6,000.00
Postage 1,000.00
Miscellaneous 5,000.00
Total Other 69,500.00
Marketing
General 75,000.00
Photography 5,000.00
Total Marketing 80,000.00
Payroll
Salary 2,000,000.00
Bonuses 50,000.00
Total Payroll 2,050,000.00
Payroll Taxes
MA Surcharge 1,500.00
SS Company 150,000.00
Medicare Company 35,000.00
DUA 12,000.00
FUTA 1,500.00
MA Health 3,000.00
Total Payroll Taxes 203,000.00
8. Project Costs
Reproduction 65,500.00
Local Travel 18,000.00
Distance Travel 10,000.00
Postage & Delivery 7,500.00
Consultants 900,000.00
Total Project Costs 1,001,000.00
Total Expenses (3,878,200.00)
Net Ordinary Income 921,800.00
Other Income/Expense
Interest Expense (Line of Credit) (5,000.00)
Net Other Income (5,000.00)
Net Income 916,800.00
10. Job Types
By Revenue By Number of Jobs
Other
Other
Residential
Residential
Institutional
Institutional
Urban
Planning
Urban
ntial Planning
Planning
ional
11. Customer Types
By Number of Jobs
Other
Professional
Developer
(non-profit)
Institutional
Individual
Developer
Government
(market rate)
13. Basic 7(a) Loan Program
7(a) loans are the most basic and most used type loan of SBA's business loan programs. Its
name comes from section 7(a) of the Small Business Act, which authorizes the Agency to provide
business loans to American small businesses.
All 7(a) loans are provided by lenders who are called participants because they participate with
SBA in the 7(a) program. Not all lenders choose to participate, but most American banks do.
There are also some non-bank lenders who participate with SBA in the 7(a) program which
expands the availability of lenders making loans under SBA guidelines.
7(a) loans are only available on a guaranty basis. This means they are provided by lenders who
choose to structure their own loans by SBA's requirements and who apply and receive a guaranty
from SBA on a portion of this loan. The SBA does not fully guaranty 7(a) loans. The lender and
SBA share the risk that a borrower will not be able to repay the loan in full. The guaranty is a
guaranty against payment default. It does not cover imprudent decisions by the lender or
misrepresentation by the borrower.
Under the guaranty concept, commercial lenders make and administer the loans.
The business applies to a lender for their financing. The lender decides if they will make the loan
internally or if the application has some weaknesses which, in their opinion, will require an SBA
guaranty if the loan is to be made. The guaranty which SBA provides is only available to the
lender. It assures the lender that in the event the borrower does not repay their obligation and a
payment default occurs, the Government will reimburse the lender for its loss, up to the
percentage of SBA's guaranty. Under this program, the borrower remains obligated for the full
amount due.
All 7(a) loans which SBA guaranty must meet 7(a) criteria. The business gets a loan from its
lender with a 7(a) structure and the lender gets an SBA guaranty on a portion or percentage of this
loan. Hence the primary business loan assistance program available to small business from the
SBA is called the 7(a) guaranty loan program.
A key concept of the 7(a) guaranty loan program is that the loan actually comes from a commercial
lender, not the Government. If the lender is not willing to provide the loan, even if they may be
able to get an SBA guaranty, the Agency can not force the lender to change their mind. Neither can
SBA make the loan by itself because the Agency does not have any money to lend. Therefore it is
paramount that all applicants positively approach the lender for a loan, and that they know the
lenders criteria and requirements as well as those of the SBA. In order to obtain positive
consideration for an SBA supported loan, the applicant must be both eligible and creditworthy.
What SBA Seeks In A Loan Application:
In order to get a 7(a) loan, the applicant must first be eligible. Repayment ability from the cash
flow of the business is a primary consideration in the SBA loan decision process but good
character, management capability, collateral, and owner's equity contribution are also important
considerations. All owners of 20 percent or more are required to personally guarantee SBA loans.
Eligibility Criteria:
All applicants must be eligible to be considered for a 7(a) loan. The eligibility requirements are
designed to be as broad as possible in order that this lending program can accommodate the
14. most diverse variety of small business financing needs. All businesses that are considered for
financing under SBA’s 7(a) loan program must: meet SBA size standards, be for-profit, not already
have the internal resources (business or personal) to provide the financing, and be able to
demonstrate repayment. Certain variations of SBA’s 7(a) loan program may also require additional
eligibility criteria. Special purpose programs will identify those additional criteria.
Eligibility factors for all 7(a) loans include: size, type of business, use of proceeds, and the
availability of funds from other sources. The following links will provide more detailed information
on these eligibility issues.
Size
When the U.S. Congress first established SBA, the fundamental question was just what numerical
definition should SBA use to define small businesses, industry by industry, to determine what
businesses were eligible for SBA's programs. Over the years SBA has established and revised
numerical definitions for all for-profit industries, and this numerical definition is called a "size
standard." It is almost always stated either as the number of employees or average annual
receipts of a business concern.
In addition to establishing eligibility for SBA programs, all federal agencies must use SBA's size
standards for its Federal Government contracts it identifies as a small business. Agencies must
also use SBA's size standards for their other programs and regulations, unless they are
authorized by Federal statute to use something else. Within Size Standards Topics we’ll review:
Eligible And Ineligible Types Of Business
Even though the SBA-qualifying standards are more flexible than other types of loans, lenders will
generally ask for certain information before deciding to use an SBA loan program. Generally, a
business will need the following documentation to evaluate your loan request:
• Business profile. A document describing type of business, annual sales, number of
employees, length of time in business and ownership.
• Loan request. A description of how loan funds will be used. Should include purpose,
amount and type of loan.
• Collateral. Description of collateral offered to secure the loan, including equity in the
business, borrowed funds and available cash.
• Business financial statements. Complete financial statements for the past three years
and current interim financial statements.
• Personal financial statements. Statements of owners, partners, officers and stockholders
owning 20% or more of the business.
The strength and accuracy of your financial statements will be the primary basis for the lending
decision, so be sure that yours are carefully prepared and up-to-date.
The most important documents in your financial statements are:
• Balance sheets from the last three fiscal year-ends.
• Income statements revealing your business profits or losses for the last three years.
• Cash flow projections indicating how much cash you expect to generate to repay the loan.
15. • Accounts receivable and “payable aging,” breaking your receivables and payables in to 30-
, 60-, 90- and past 90-day old categories.
• Personal financial statements from you and your business partners listing all personal
assets, liabilities and monthly payments, as well as your personal tax returns for the past
three years.
Use Of Proceeds
7(a) loan proceeds may be used to establish a new business or to assist in the operation,
acquisition or expansion of an existing business. These may include (non-exclusive):
• To purchase land or buildings, to cover new construction as well as expansion or
conversion of existing facilities;
• To acquire equipment, machinery, furniture, fixtures, supplies, or materials;
• For long term working capital including the payment of accounts payable and/or for the
purchase of inventory;
• To refinance existing business indebtedness which is not already structured with
reasonable terms and conditions;
• For short term working capital needs including: seasonal financing, contract performance,
construction financing, export production, and for financing against existing inventory and
receivable under special conditions; or
• To purchase an existing business.
Ineligible use of Proceeds
There are certain restrictions for the use of SBA loans. The following is a list of purposes which
SBA loans can not finance:
• To refinance existing debt where the lender is in a position to sustain a loss and SBA
would take over that loss through refinancing;
• To effect a partial change of business ownership or a change that will not benefit the
business;
• To permit the reimbursements of funds owed to any owner. This includes any equity
injection, or injection of capital for the purposes of the businesses continuance until the
loan supported by SBA is disbursed;
• To repay delinquent state or federal withholding taxes or other funds that should be held
in trust or escrow; and
• For a non sound business purpose.
Availability Of Funds From Other Sources
The Federal Government does not extend credit to businesses where the financial strength of the
individual owners or the company itself is sufficient to provide all or part of the financing.
Therefore, the utilization of both the business and personal financial resources is reviewed as part
of the eligibility criteria. If business and personal resources are found to be excessive, the
business will be required to be use those resources in lieu of part or all of the requested loan
proceeds.
16. Character Considerations:
SBA must determine if the principals of each applicant firm have historically shown the willingness
and ability to pay their debts and whether they abided by the laws of their community. The Agency
must know if there are any factors which impact on these issues. Therefore, a "Statement of
Personal History" is obtained from each principal.
Other Aspects Of The Basic 7(a) Loan Program
In addition to credit and eligibility criteria, an applicant should be aware of the general types of
terms and conditions they can expect if SBA is involved in the financial assistance. The specific
terms of SBA loans are negotiated between an applicant and the participating financial institution,
subject to the requirements of SBA. In general, the following provisions apply to all SBA 7(a)
loans. However, certain Loan Programs or Lender Programs vary from these standards. These
variations are indicated for each program.
Maximum Loan Amounts
SBA's 7(a) Loan Program has a maximum loan amount of $2 million dollars. SBA's maximum
exposure is $1.5 million. Thus, if a business receives an SBA guaranteed loan for $2 million, the
maximum guaranty to the lender will be $1.5 million or 75 percent. SBAExpress loans still have a
maximum guaranty set at 50 percent
Maturity Terms For 7A Loans
SBA loan programs are generally intended to encourage longer term small business financing but
actual loan maturities are based on: the ability to repay, the purpose of the loan proceeds, and
the useful life of the assets financed. However, maximum loan maturities have been established:
twenty-five (25) years for real estate and equipment; and, generally seven (7) years for working
capital.
Loans for working capital purposes will not exceed seven (7) years, except when a longer maturity
(up to 10 years) may be needed to ensure repayment. The maximum maturity of loans used to
finance fixed assets other than real estate will be limited to the economic life of those assets -
but in no instance to exceed twenty-five (25) years. The 25-year maximum will generally apply to
the acquisition of land and buildings or the refinancing of debt incurred in their acquisition. Where
business premises are to be constructed or significantly renovated, the 25-year maximum would
be in addition to the time needed to complete construction. (Significant renovation means
construction of at least one-third of the current value of the property.)
When loan proceeds will be used for a combination of purposes, the maximum maturity can be a
weighted average of those maturities, which results in level payments. Or, it can be the sum of
equal monthly installments on the allowable maturities for each purpose, which results in unequal
payments, with a higher requirement for repayment during the initial term of the loan.
Interest Rates Applicable to 7A Loans
Interest rates are negotiated between the borrower and the lender but are subject to SBA
maximums, which are pegged to the Prime Rate.
Interest rates may be fixed or variable. Fixed rate loans of $50,000 or more must not exceed
Prime Plus 2.25 percent if the maturity is less than 7 years, and Prime Plus 2.75 percent if the
maturity is 7 years or more.
17. For loans between $25,000 and $50.000, maximum rates must not exceed Prime Plus 3.25
percent if the maturity is less than 7 years, and Prime Plus 3.75 percent 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
percent if the maturity is less than 7 years, and Prime Plus 4.75 percent, if the maturity is 7 years
or more.
Variable rate loans may be pegged to either the lowest prime rate or the SBA optional peg rate.
The optional peg rate is a weighted average of rates the federal government pays for loans with
maturities similar to the average SBA loan. It is calculated quarterly and published in the "Federal
Register." The lender and the borrower negotiate the amount of the spread which will be added to
the base rate. An adjustment period is selected which will identify the frequency at which the note
rate will change. It must be no more often than monthly and must be consistent, (e.g., monthly,
quarterly, semiannually, annually or any other defined, consistent period).
Percentage of Guaranty on 7A Loans
For those applicants that meet the SBA's credit and eligibility standards, the Agency can guaranty
up to 85 percent of loans of $150,000 and less, and up to 75 percent of loans above $150,000.
This standard applies to most variations of the 7(a) Loan Program.
However, SBAExpress loans carry a maximum guaranty of 50 percent guaranty. The Export Working
Capital Loan Program carries a maximum of 90 percent guaranty, up to a guaranteed amount of
$1,000,000.
SBA Fees for 7A Loans
To offset the costs of the SBA's loan programs to the taxpayer, the Agency charges lenders a
guaranty fee and a servicing fee for each loan approved and disbursed. The amount of the fees
are based on the guaranty portion of the loans. The lender may charge the upfront guaranty fee to
the borrower after the lender has paid the fee to SBA and has made the first disbursement of the
loan. The lender's annual service fee to SBA cannot be charged to the borrower.
For loans approved on or after December 8, 2004, the following fee structure applies:
• For loans of $150,000 or less, a 2 percent guaranty fee will be charged. Lenders are
again permitted to retain 25 percent 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 percent guaranty
fee will be charged.
• For loans greater than $700,000, a 3.5 percent guaranty fee will be charged.
• For loans greater than $1,000,000, an additional .25 percent 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 percent guaranty fee. The portion greater than $1,000,000 would be
charged at 3.75 percent.
The annual on-going servicing fee for all 7(a) loans approved on or after October 1, 2006 shall be
0.55 percent of the outstanding balance of the guaranteed portion of the loan. The legislation
provides for this fee to remain in effect for the term of the loan.
18. Combination Financing:
Beginning October 1, 2004, Combination Financing will no longer be allowed
Prohibited Fees:
Processing fees, origination fees, application fees, points, brokerage fees, bonus points, and
other fees that could be charged to an SBA loan applicant are prohibited. The only time a
commitment fee may be charged is for a loan made under the Export Working Capital Loan
Program.
Prepayment Penalties for SBA 7A Loans
a. have a maturity of 15 years or more where the borrower is prepaying voluntarily;
b. the prepayment amount exceeds 25 percent of the outstanding balance of the loan; AND
c. the prepayment is made within the first 3 years after the date of the first disbursement (not
approval) of the loan proceeds.
The prepayment fee calculation is as follows:
a. during the first year after disbursement, 5 percent of the amount of the prepayment;
b. during the second year after disbursement, 3 percent of the amount of the prepayment; or
c. during the third year after disbursement, 1 percent of the amount of the prepayment.