A business plan precisely defines your business, identifies your goals, and serves as your firm's resume. The basic components include a current and pro forma balance sheet, an income statement, and a cash flow analysis. It helps you allocate resources properly, handle unforeseen complications, and make good business decisions. Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan application. Additionally, it informs sales personnel, suppliers, and others about your operations and goals.

The best way to enhance your chance of success is to plan and follow through on your planning. A business plan serves three purposes:

1. The process of putting together a business plan, including the thought you put in before beginning to write it, forces you to take an objective, critical, unemotional look at your business project in its entirety.

2.  The finished product – your business plan – is an operating tool which, if properly used, will help you manage your business and work effectively toward its success.

3.  The completed business plan communicates your ideas to others and provides the basis for your financing request.

Financial and cash flow projections are a key component of your business plan for start-up and expanding businesses. Financial projections detail your monthly budget for two years into the future for revenue, expenses, profit, and cash flow.  Projections are supported by detailed narrative assumptions which outline how each line item in the budget was estimated.  When reviewing an application for financing, a lender reviews projections to determine if the business owners have a reasonable, well planned vision for how much the company will grow and how the business will generate adequate cash flow to make debt payments.  Creating financial projections is challenging, and free technical assistance is available.

Free technical assistance is available through the MN Small Business Development Centers and SCORE offices.

Interest rates for Initiative Foundation loans currently range from 8 – 10% fixed based on fluctuating market rates and project risk.  Initiative Foundation provides gap financing to supplement owner equity, which is inherently higher risk than bank financing.  Initiative Foundation determines interest rates based on a breakeven analysis to cover program costs such as losses, interest paid to borrow funds, and program administration. 

Healthy, sustainable communities need businesses that provide quality, living wage jobs with benefits.  Access to capital drives small business development and economic growth, and the Initiative Foundation provides gap financing which supplements owner equity to help businesses start up and grow.

• Businesses not located within the Initiative Foundation’s 14 county central MN services region.
  
• Absorbing risk or losses from weak or poorly managed companies.
  
• Refinancing existing debt.
  
• Alcohol-related businesses (on or off sale), pornography, speculative ventures, or gambling operations.
  
• Conventional agriculture.

If you are well prepared and can provide decision-making information up front, you maximize your chance of securing a small business loan from your local lender.  Unfortunately, there is no easy way to get a loan.  Full loan applications require hours of planning and research.  Below is a checklist to guide you in the process, and free technical assistance is available. 

Financing Proposal Checklist:

• Business plan
  
• Financial projections with supporting assumptions
  
• Financial reporting for existing businesses:
  o Annual financial statements for past three years (income statement and balance sheet)
  o Interim financial statements which are less than 90 days old
  o Current aging schedules for accounts receivable and accounts payable
  o Tax returns for past three years
  o Schedule of existing business debt

• Resumes for key management
  
• For owners of 20% or more of business, three years tax returns and personal financial statements
  
• Information on the loan request:
  o How much do you want to borrow and how did you determine the amount?
  o What is the purpose of the loan – how will you use the money?
  o When do you need the money?
  o How will the loan be repaid?
  o What can you provide as collateral for the loan?