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FORTUNE Small Business:

Get loans without a financial history

Looking to grow a home-based baking business, an entrepreneur with no financial business history wonders how to write an investment-worthy business plan.

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(FORTUNE Small Business) -- Dear FSB: I have a small, home-based baking business with a growing clientele. I have an opportunity to purchase a bakery business in my town. I don't want to buy their name, just their inventory, which they want to sell. I have a 401(k) of $13,000 and a small inventory of my own, but no other capital. How do you write a business plan when you don't have at least three years of financial history to report and you need additional money for startup costs?

- Gloria Boozer, Norwich, Conn.

Dear Gloria: When you consider a recipe, you like to know exactly what ingredients you'll need to include to make it irresistibly delicious. Lenders look at potential borrowers and their business plans in the same way. They want to be certain that the plan has the ingredients to grow a profitable business. Without three years of financial statements, your "ingredients" will be clear answers to some basic questions in the form of financial projections.

Three basic financial statements should be projected in your plan: a profit and loss projection, a cash flow projection showing cash in and cash out on a monthly basis, and projected year-end balance sheets. Because all three are driven by revenue, you must construct a monthly revenue projection for the first three to five years. Being realistic is critical - but you have an edge there.

"Fortunately, you have data to support projections from your own sales and the sales of the bakery you hope to acquire," says Bill Morland, a business counselor with the Service Corps of Retired Executives (SCORE), a branch of the U.S. Small Business Administration.

For the profit and loss projection, your gross margins (revenue less cost of goods sold) must, at minimum, be enough to maintain positive profits and cash flows, Morland says. Providing clear documentation of expected operational expenses is important, particularly for variable expenses.

"You'll be able to justify fixed expenses like rent and insurance based on the bakery's information, but you'll need to research and document the variable expenses for the period of the business plan," Morland says.

SCORE provides free business plan templates and templates for financial projections on its website. There, you can also locate the chapter closest to you, where a counselor can help you.

Presenting your plan to lenders can be less appealing than scraping the burnt mess off the bottom of a pan you left in the oven overnight. For a charge, iBank.com will broadcast a loan application and other data to hundreds of banks at a time.

"It's a good way to test the validity of the basic business idea," Morland says. To top of page

How did you qualify for a loan without a financial history? Share here.

A business plan that will get you a loan
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