In the early 1950s an independent governmental agency was formed to encourage and assist small businesses. Known simply in the business world as the SBA, the Small Business Administration was formed with the intention to strengthen the economy and maintain free competitive enterprise. This is accomplished through advocating for small businesses and providing opportunities and resources that help them plan, launch, manage, and grow their businesses.

The SBA offers many invaluable resources to small businesses beginning with entrepreneurial development and business training programs. They also help businesses land government contracts. They have partnered with several federal departments and agencies to ensure 23% of prime contract dollars are awarded to small businesses. Further, they help entrepreneurs and companies secure access to capital, most notably through SBA loans.

SBA loans are not actually loans issued by the SBA. Instead, the SBA partners with lenders to help guarantee portions of the loan and get them access to capital, which makes it easier for the lender to offer loans to your small business. The SBA also helps set standards on interest rates and other terms to ensure small businesses receive favorable loans. One of the main requirements to be approved for an SBA loan is a formal, written business plan.

Understanding the overall advantages of a business plan begins to shed light on why it is a requirement for SBA loans. A business plan not only lays the foundation for your business in the early stages but having one that is revisited and updated often is imperative to business success. It is estimated that roughly 70% of small businesses survive the first two years but, as time goes on, the chance for continued success decreases. Only 50% of businesses make it to five years and just 25% will see their 15th anniversary. At Smirnova Business Consulting, we’ve seen first-hand how a frequently updated and carefully considered business plan contributes to a company’s continued success. This correlation between the business plan and success is one of the reasons it is required by the SBA.

The SBA will expect a formal business plan that includes all the standard components and follows a common order. Further, it is important that the plan be detailed and cohesive, where one section ties into and supports another.

One of the earliest and longest sections will be market research. Market research is one of the most important components of the business plan. It is through market research you gain the appreciation for the full market potential of your product or service. You will identify your competitors, who your potential customers are, and this is when important SWOT (strengths, weaknesses, opportunities, and threats) aspects begin to emerge.

In the following sections, you will have a company description, organization and management description, marketing and sales strategies, and elaborate on your product or service. If done well, market research will play a part in what is presented in these sections, particularly the marketing and sales strategies.

Last, but most certainly not least, are the financials. Although typically presented at the end of the business plan, the financial section is often the most important when applying for an SBA loan. In addition to providing long-term financial projections, this should also include personal financial information for the owners as they will likely be on the hook for any unpaid loans of the business. Further, it will include the current financial status of the company as well as historic financials for several years, depending on how long the company has been in business.

A well-written business plan shows you have thoroughly researched and thought through your business. The SBA and partnering lenders are genuinely interested in your business and the business plan gives them many key pieces of information about your likelihood of success. However, at the forefront, they are specifically looking to see that you will be able to make your monthly payment if they loan you money.

Due to this, the most crucial element of the business plan from the standpoint of the SBA and lender is the financials. They will not just be interested in the financial projections themselves but, how well researched and supported the numbers are by the rest of the plan. More specifically, they need to be convinced that your sales expectations are realistic, expenses are reasonable, and you have a strong cash flow plan. They also want to understand how their loan will be used to benefit the business.

Tying all these aspects together can be nerve wracking and a challenge, especially if this is your first attempt at writing a business plan or applying for outside funding. However, our experienced business plan writers at Smirnova Business Consulting are well-versed in the requirements and expectations of SBA loans and lenders. We make sure to artfully tell the story of your business in a convincing and compelling way that hits all the key aspects of the business plan.