Are financial projections needed for taking out a business loan?
I am thinking about taking out a loan for my business. I know I need to put together a business plan for the bank and should include all historical financial data. What would I include for financial projections? And if financial projections are included, how many years ahead do I need to project?
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It will depend on the bank. But if you are in business, any kind, you have to know your numbers, so you do need budgets, forecasts and financial projections in general. This is a must for any business of any size
Walter's answer is correct. I would also add that if you are questions on the figures, for your forecast, be able to explain how you arrived at the numbers.
Any application for finance will need sale and cost projections, whether it's an invitation to invest, an application for a grant, or an application to borrow. Three years is usually good enough, but check with your advisors what you should show.
The challenge is not actually writing the forecast, though - the only thing you can know for certain about any forecast is that it will be wrong, and your potential lender or investor will anyway assume this - it is understanding the assumptions you make when forecasting your sales and costs, and then being able to articulate them when challenged in order to justify your reasoning.
Ideally, you should have a model that you can flex in order to show good, average and poor projections. We use the Edge Financial Forecast model, http://www.edgeforecast.co.uk/, for our clients.
Hi, Thomas, I'm a SCORE mentor and business coach/consultant. You will need a cash flow projection for at least the next year, and possibly 2-3 years. You can download (free) templates for the financials from the SCORE.org site. You are also likely to need your personal financials (balance sheet, tax returns) for the last 3 years, depending on how long your business has been in existence, your role in the business and what type of loan you're looking for. You could also check out the SBA guaranteed loans to see if you/your business qualify.
It will depend on the bank, the amount of the loan, and if you have any collateral. If it were me, I'd want to have projections for my own purposes anyway to make sure I can repay the loan.
I think you should try to do financial projections for 3 years...Using sales forecasts that are made up of best case, worst case, and realistic for all 3 years...Then have a flexible budget for based upon each case of sales
For borrowing up to £25,000 1 year's projections should be enough. 3 year's would be necessary byond that. The financial projections, which incidentally start with a current balance sheet (statement of affairs showing what is owed and due to the business and other assets and liabilities) should be integrated and include at the minimum Cash Flow, Profit and Loss and Balance Sheet projections. You would include:-
Income Sources (and when receivable)
Cost Of Sales or Services
Any other financing
Capital Expenditure required with details.
Drawings or Remuneration of all staff and owners/ directors.
Financial projections for three years are sought by the bank- but remember they are just that- projections- they therefore need to be realistic and achievable- if you cannot achieve your projections they will be consigned to the dustbin
Yes. Usually it would be better for you to prepare a P&L and cash flow projection with focuses on resources of revenue, GP, and high level capex and major expense items. meanwhile a decent description of your business model will surely help others gain confidence in you.
With regards to years, it really depends on how soon your cash flow will allow you to pay back the loan.