5 Key Tips to Make Your Startup Business Plan Shine for an SBA Loan

Crafting a solid business plan is a critical step in securing the financing you need to bring your startup to life. But if you’re going to go through the effort of creating a business plan, we want to make sure that it has the best possible chance to actually get you what you need. What does it take to elevate a business plan from good to great? Today, I’m here to share five key strategies to make your startup business plan truly stand out and get approved for financing.

Before joining ProjectionHub, I spent nearly seven years as an SBA loan officer, where I reviewed countless business plans and financial projections, assembled loan packages, and guided businesses through the underwriting process. While I’m no longer on the lender side of the table, I still have the privilege of helping new starts and business owners create business plans and integrate their financial projections to get prepared for their loan applications, and all of the same tips are still as true as ever!

In this blog, I’ll share actionable tips drawn from my experience to help you enhance your business plan. These insights are designed to help you meet and exceed lenders’ expectations and to try and increase your likelihood of approval. SPOILER, it does not require your business plan to be 100 pages long... Yes, I did receive business plans that long as a lender. No, I did not read them. 

Without further ado, let’s dive into the five key ways to make your startup business plan shine! And if you’d rather watch a video version  of these tips, here you go!

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1. Demonstrate Market Potential

Importance of Market Analysis

One of the first steps in making your business plan stand out is to show that there is a real demand for your product or service. Lenders want to see that you’ve done your homework and that there’s a market ready and waiting for what you’re offering. Some form of market analysis is crucial for this step.

Conducting Local Research

To demonstrate market potential, start with local research. This involves looking at your competitors and understanding the demand in your area. Here’s a step-by-step process to get you started:

1. Identify Your Location and Competitors: Begin by identifying where you plan to operate your business and who your direct competitors will be. For example, if you’re opening a spa in Fishers, Indiana, search for other spas in that area.
2. Use Online Tools: Utilize tools like Google AdWords Keyword Planner to analyze search trends. This tool helps you understand what people in your target area are searching for. For instance, search terms like "spa near me" or "massage near me" can provide valuable insights.
3. Competitor Analysis: Look at the top three to five competitors in your area. Identify their strengths and weaknesses. For example, a competitor might have been around the longest and have a loyal customer base but might also have poor reviews due to complacency.

Example Process

Let’s say you’re opening a spa in Fishers, Indiana. Here’s how you might approach it:

• Step 1: Search Trends: Use Google AdWords to check how often people search for terms like "spa near me" in your area. Look at the trend data to see if interest is growing.
• Step 2: Competitor Research: Identify the top spas in Fishers. Note what they do well and where they fall short. Maybe they have excellent facilities but lack modern treatments that you plan to offer.
• Step 3: Combine Findings: Use this data to show that there’s room for your business. Highlight the growing interest in spa services and pinpoint gaps in what existing businesses offer.

Tangible Evidence

Include tangible evidence in your business plan. Take screenshots of your keyword research results, include logos of your competitors, and even add snippets of their reviews. This not only shows that you’ve done your research but also provides concrete evidence of the market potential.

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2. Show Traction and Pre-Launch Interest

What is Traction

Traction is all about demonstrating that there is already interest and momentum behind your business idea. It’s one thing to tell lenders that people will love your product or service, but it’s another to show that people are already excited about it. This proof of early interest or pre-launch activity can make a significant difference.

Methods to Demonstrate Traction

Here are a couple of effective methods to show traction:

1. Pre-Launch Revenue: If possible, start generating some revenue before your official launch. This could mean offering a limited version of your product or service to early adopters or hosting pre-sale events.
2. Building a List of Interested Customers: Collect names and contact information from potential customers who are interested in what you’re offering. This could be through a sign-up form on your website, a social media campaign, or in-person events.

Practical Examples

Let’s look at some practical ways to build and demonstrate traction:

• Online Campaigns: Launch a pre-opening campaign to generate buzz. Offer early bird discounts or create a Founders Club where early customers receive special perks. For example, you might offer a discount to everyone for the first year if they come in as a customer within 30 days of opening your doors.
• Side Hustles: Start small by offering your services on the side. For instance, if you’re opening a bakery, begin by selling baked goods at local farmers' markets or taking custom orders from your home to friends and family and referrals. Document your sales data and customer feedback.

I’ve always said the two best examples of traction are 1) pre-launch sales and 2) names on a list (that they actually know what they are signing up for). The more you can demonstrate either of those, the better!

Proof of Commitment

Showing traction is also about demonstrating your commitment and hustle. Lenders are more likely to support a business owner who has shown the initiative to start building their business, even in a small way, before seeking full-scale financing. I can 100% attest to his being true when I was a lender. Grit matters. Hustle matters. If you can show that you’ve been in the trenches and you’re still going, that really matters to a lender!

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3. Highlight Relevant Industry Experience

Avoiding Red Flags

One of the biggest concerns for lenders is whether you have the experience needed to run your business successfully. If they sense you’re unprepared or lack relevant experience, they’re less likely to approve your loan. Demonstrating your industry knowledge and skills is crucial to overcoming this hurdle.

Transferring Skills

Even if you’re entering a new industry, you likely have transferable skills that can help you succeed. The key is to present your experience in a way that highlights these relevant skills.

For example, if you’re opening a spa but have a background in marketing, emphasize your ability to attract and retain customers, manage teams, and create effective promotional strategies. These skills are incredibly valuable, even if you haven’t run a spa before.

Supplementing Experience

Sometimes, it’s beneficial to bring on a partner or hire key employees who have direct experience in your industry. This can help bolster your business plan and reassure lenders that your team has the necessary expertise. It’s also just flatout smart and helpful if you really do lack some key skills or experience to be successful. Lenders have this concern for a reason!

For example, when I was a lender one of my all-time favorite clients was a woman who started a business selling her very own specialized granola mix that was originally made to be compliant with a rigorous diet required by one of her kids. They realized the granola was really good and it filled a need for others who struggled with the requirements of the same diet. She was very charismatic, kind, a great sales person, hustler, lots of good things. But she lacked real experience on the business management side of things especially at the scale they were headed towards with retailers like Costco, Target, etc. So we had some concerns approving a pretty large loan. We then came to find out that her husband was pretty involved behind the scenes and he had experience owning and operating a large car dealership for many years which included the obvious business management experience but also niche things like inventory management, short term financing, etc. The combination of their skill sets and experience made the whole picture make sense for us as the lenders. 

Real-Life Examples

So how does this look in your business plan? Let’s break down a practical example:

• Step 1: Highlight Your Strengths: Start by clearly outlining your own skills and experiences that are relevant to running the business. For instance, if you’ve managed a team in a different industry, explain how those leadership skills will help you manage spa staff.
• Step 2: Introduce Key Team Members: If you’ve hired an experienced spa manager or have a partner, or group of key advisors, include their bio and explain how their expertise will benefit your business. Highlight their track record and how their experience fills any gaps in your own knowledge.
• Step 3: Combine Skills: Show how your combined skills create a strong foundation for the business. For example, your marketing expertise paired with your partner’s operational experience creates a well-rounded team capable of handling both customer acquisition and day-to-day operations.

Example Process

Imagine you’re opening a spa and have a background in corporate management. Here’s how you might present this:

• Step 1: Your Experience: "I have 10 years of experience in corporate management, where I developed strong leadership and organizational skills. I successfully managed teams of up to 20 people and oversaw large projects with tight deadlines."
• Step 2: Partner’s Experience: "To complement my skills, I’ve partnered with Lee Tanaka, who has over 15 years of experience managing high-end spas. Lee has a proven track record of increasing customer satisfaction and streamlining spa operations."
• Step 3: Combined Strengths: "Together, our combined expertise in management and spa operations positions us to successfully launch and grow our new spa, ensuring both excellent customer service and efficient business practices."

Avoiding Concerns

By clearly outlining your relevant experience and supplementing it with key hires, you alleviate lender concerns about your ability to run the business. This approach shows that you understand the importance of industry knowledge and are taking steps to ensure you have a strong team in place.

You can even include headshots, links to linkedin profiles, resumes, etc. anything to make it easy to demonstrate the experience. 

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4. Create Realistic Financial Projections

Critical Role of Financial Projections

Financial projections are arguably the most important part of your business plan. Lenders rely heavily on these numbers to gauge the viability and profitability of your business. Therefore, it’s essential to present financial projections that are not only detailed but also realistic and within industry norms. Projections are THE most important part of your business plan so take special care to make sure they accurately reflect what you know and believe to be accurate for your business. Don’t just make assumptions based on numbers that sound good, but instead blend what is typical for the industry and your unique situation.

Using Industry Benchmarks

To ensure your financial projections are credible, use industry benchmarks as a guide. This means researching typical profit margins, operating expenses, and revenue expectations for your specific industry. For instance, if you’re opening a spa, look for data on what is an average profit margin in the spa industry and then compare that to your projections. This helps you set realistic expectations and show lenders that you understand the financial landscape of your business.

ProjectionHub Templates

I highly recommend our industry-specific financial projection templates. These templates are tailored for various industries and come pre-filled with typical financial metrics, making it easier to create accurate projections. If I had to say the one thing that applicants were most unprepared, confused, and overwhelmed with - it was the financial projections. And rightfully so! While projections are crucially important for a lender considering whether or not to lend a startup thousands of dollars (sometimes millions!). The projections should also be vitally important to you as the founder. Projections are your chance to simulate and see if your concept could actually work as long as you are able to attract the number of customers you think you can. So work hard to understand them. Using one of our projection templates can be very helpful to make it easy to fill out but you also understand what’s going into the calculations.

Example Process

Here’s a step-by-step guide to creating realistic financial projections for a spa:

• Step 1: Outline Services and Pricing: List all the services your spa will offer along with their pricing. This could include massages, facials, and other treatments. And research other spas to find out what price range you want to be in. Don’t just copy or compete with a competitor on price point. Make sure your price matches the level of quality you will provide based on what actually exists out in the marketplace.
• Step 2: Estimate Sales Volume: Based on your market research, estimate the number of customers you expect to serve each month. Consider factors like seasonality and local demand.
• Step 3: Operating Expenses: Detail your monthly operating expenses, including rent, utilities, salaries, and supplies. Use industry averages to ensure your estimates are realistic.
• Step 4: Financial Statements: Use a template like one of ProjectionHub’s to enter your data and generate financial statements, including income statements, cash flow statements, and balance sheets. These documents will provide a comprehensive view of your financial projections. (you can also hire us to do it for you!)

Benchmarking Process

After creating your projections, benchmark them against industry standards. Here’s how you can do it:

• Step 1: Research Industry Norms: Use resources like basic Google searches, ChatGPT (or any AI tool), industry reports, online databases, and financial websites to find average profit margins, operating expenses, and revenue figures for your industry. Checking more than one source is probably smart and if you can find it at a State level even better. 
• Step 2: Compare Projections: Check if your projections align with industry norms. For example, if the average net profit margin for spas is 10-15%, ensure your projections fall within this range. You can do this for any number in your projections. Some may be hard to find a hard number depending on how niche your business is, but there should be something out there to go on! You can also ask our team at support@projectionhub.com for our input on what some good numbers may be.
• Step 3: Adjust as Needed: If your projections are significantly higher or lower than industry norms, adjust them to be more realistic. Don’t just change numbers to make profit go up, but make sure the changes that you make in your projections are possible in the real world. This shows lenders that you’ve done your homework and are not overestimating your potential profits. Conservative is the best approach here! It’s okay to not be profitable in the first year or even 2 if you can minimize losses and have working capital.

Avoiding Red Flags

Unrealistic financial projections can raise red flags for lenders. They might question your understanding of the business or doubt the feasibility of your plan. By using industry benchmarks and presenting conservative, well-researched projections, you build credibility and increase your chances of securing financing. It can be very difficult to come back from a bad first impression of your numbers, so make sure you take the time and care to have them dialed in before sharing them! This can be said for personal financials too. Clarify any confusing financial line items and eliminate any room for doubt!

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5. Prepare for the Skin-in-the-Game Conversation

Now, this section does not need to be written into the business plan, per say. You could include details like ownership percentages, available collateral, etc if you are very sure of it and comfortable with those details. Rather, you should have all of the following in this section prepared and ready to go and hold these cards close to the chest and play them as needed to get to the finish line as long as you are comfortable with what they request.

Understanding “Collateral” Requirements

When applying for a loan, be prepared for the lender to ask about your "skin in the game." This means they want to see how much risk you’re willing to take on. This can include many different things like your personal investment (cash) in startup costs, how many assets you have available to pledge as collateral (business AND personal if required), personal guarantees (cosigners) pledge to repay the loan if the business can’t, etc. 

Personal and Business Collateral

Lenders often require collateral to secure the loan. Or at least as much as they can get to get as close as possible to “being made whole” if the loan defaults. This could be business assets like equipment and inventory or personal assets such as your home or car. Here’s what you need to know:

1. Business Collateral: If you’re purchasing equipment or inventory or anything for your business, these will serve as collateral for the loan especially if they are large or have titles/deeds. This means if you default on the loan, the lender can seize these assets and liquidate them to try and cover their losses. Be aware, assets have a discounted value when it comes to their liquidation value. Not all assets hold their value so the lender will assume it is worth less than what you say it is. Especially for non-titleable assets. So the $50,000 of plates, cutlery, and glassware, and tables, and chairs, etc in a restaurant will not serve as $50,000 as collateral in the lender’s calculation. They will have some discounted percentage they use in that calculation.
2. Personal Collateral: If your business won’t have enough assets on paper to match the size of the loan (after they have applied the discounted value percentage), lenders might require personal collateral. This could involve taking a second mortgage on your home or a free and clear vehicle title. This is obviously uncomfortable and is nobody’s preference. 

When I was a lender, very often I would hear from the applicant that they wanted to “keep the business and personal separate” meaning they don’t want to be held personally responsible for the repayment of the loan. I would always tell them that is really great advice for things like bookkeeping and bank accounts to keep those separate and clean. However, it is not realistic advice when it comes to guaranteeing a loan. You will be required to personally guarantee the loan and any owner of 20% or more, and any cosigner, at least that will be true for an SBA loan and I suspect a similar requirement for conventional loans.

Strategies for Success

Here are some strategies to prepare for the collateral conversation with your lender:

• Know Your Assets: Make a list of both business and personal assets that could potentially be used as collateral. Understand their value and be ready to discuss them with your lender if needed and if you have decided they are fair game. Be conservative with the asset values and look up what discounted rates lenders may use when calculating potential collateral. Lenders will only be interested in things with titles, deeds, or some reliable way to “secure” that asset. 
• Be Prepared to Negotiate: Decide ahead of time what you’re willing to offer as personal collateral and what is a deal-breaker for you. Anything the loan will purchase or business assets should be expected to be pledged as collateral. Lenders will only take/liquidate what they need to be made whole if you have more business assets than debt obligations. This helps you negotiate confidently when the time comes or when to walk away and try a different lender.
• Line Up a Co-Signer: If you think you might need a co-signer, identify someone who is willing and able to help. Having this conversation early can save time and show your lender that you’re prepared. You don’t have to tell your lender you have a cosigner lined up. Wait until they ask and then you can share that you have someone who may be willing to sign. The best cosigners have 1) good credit scores/history (700+). 2) disconnected income from the applicants. Regular and ample income that will not be disrupted by this business. 3) Are actually willing to help repay the loan if it comes to that. Cosigners are not a formality and will be held responsible for repayment upon default of the loan so make sure they know what they are signing up for.

Avoiding Surprises

Being prepared for the skin-in-the-game conversation helps avoid surprises during the loan application process. By understanding what collateral you can offer and having these discussions early, you demonstrate to the lender that you’re serious and well-prepared and ready to move quickly.

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Conclusion

Recap of Key Points

Crafting a business plan that stands out to lenders is no small feat, but by focusing on these five key strategies, you can significantly improve your chances of securing the financing you need:

1. Demonstrate Market Potential: Show that there is a real demand for your product or service by conducting thorough local research and competitor analysis.
2. Show Traction and Pre-Launch Interest: Prove that there is already interest in your business through pre-launch revenue or a list of potential customers.
3. Highlight Relevant Industry Experience: Make sure lenders know you have the experience and skills necessary to run your business, or supplement your team with key hires
4. Create Realistic Financial Projections: Present financial projections that are grounded in industry norms and backed by solid research.
5. Prepare for the Skin-in-the-Game Conversation: Be ready to discuss what you are ready to commit in order to mitigate the lender’s risk by taking on more risk yourself.

By incorporating these strategies into your business plan, you’ll be well on your way to creating a document that not only meets but exceeds lenders’ expectations. If you need help with your business plan or financial projections, feel free to reach out to us at support@projectionhub.com. We’re here to help!

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