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2.6 Loan Summary Analysis Questionnaire

Why is the loan summary section important in a business plan for a Plumbing and Heating Contractor?

The loan summary section of a business plan for a small business like Central Plumbing & Heating Inc. gives a business owner like Felix Gonzalez the ability to list out the loans and lines that the business will be undertaking in the three years of the business plan. Business loan lenders and potential partners need to be able to see very early in the business plan just how much debt the business will be taking on and that is why it is important to have the loan summary section give that information to them separately from the financial section where this information also got to be included.

Is it not a better idea to bury this information deep in the financial section of the business plan for a small business like Central Plumbing & Heating Inc.?

No. Information about the projected financial well being of the business and especially the level of indebtedness of a business are key to the folks looking to lend business loans or potentially partner up with a business. Readers of a business plan do not like to have to dig through the plan for important pieces of information like that - the more they have to dig - the more they begin to suspect the motives of the business planner. It is always better to be upfront and clear about the how much money the small business will be needing in the days ahead.

Are term loans better than lines of credit - how should a small business owner like Felix Gonzalez decide?

Both fully amortizing term loans and interest only lines of credit have their own benefits and drawbacks. A typical term loan locks a small business owner like Felix Gonzalez into a loan and they have to pay back the entire term loan with principal and interest that is determined at the outset of the loan. An example of a typical term loan is a car loan where once you close on the loan, you will have to pay back the entire amount of principal and interest to get rid of the loan. Terms loans are best suited for the purchase of assets where the business knows that it is going to need to buy the asset and will be using the asset for a long period of time during its operations - computers, machinery, automobiles and equipment are typically what small businesses purchase with term loans.

An interest only line of credit on the other hand is a different animal. With an interest only line of credit a small business owner like Felix Gonzalez only has to make the minimum payment of interest on the amount of debt outstanding. Further, these lines typically allow the small business owner to borrow against and pay down the line as they need giving them a lot more flexibility. Thus a line of credit is an excellent source of capital for all short term financing needs and we recommend that all our small business customers have a small line of credit in addition to other sources of financing. The reason we do not recommend that interest only line of credit for longer term purchases is that these lines are typically renewed every year at the discretion of the lender and thus if feel you will need to access this line next year to finance an important purchase and the following year your line does not get renewed, your expansion plans could be placed on hold.

How about credit cards? Should a small business owner like Felix Gonzalez contemplate using personal credit cards?

Many times, especially in the case of start up companies, a small business owner like Felix Gonzalez may not have the ability to access loans and lines of credit from banks. In these cases, many business owners resort to using their personal credit cards to finance their business. Indeed many businesses have been financed by family loans and credit cards. Clearly, this form of financing is not sustainable and we do not recommend that personal or corporate credit cards be used unless they are being paid off at the end of the month and other benefits like frequent flyer miles and discount points from stores can be earned. Some banks even offer credit cards that give business owners cash back in the form of a check at the end of the year - these can prove to be very good credit cards and as long as the balances on these cards are paid off quickly, they can prove to be a convenient method of payment.

Quick Links:

  1. Go to the Corresponding Template section for this industry.
  2. Go to the Corresponding Business Plan section for this industry.

Small Business Owner Resource Center


Articles on the Small Business Financing Sources, the Small Business Loan Basics, small business loans Checklist and SBA Loans are incredible sources of knowledge for the small business owner.



Credit Report and Credit Score Analysis, how to Read a Personal Credit Report and all about Business Credit cover the intricacies of credit and are required reading for everybody.



The Foundation Grant Directory is a free listing of sources for grants by state. Why not look if there is some free money out there for your business. Hey - you never know!



The Business Loan Application covers every item you will need in your loan package and tells you how to get approved for business loans.



Fire your loan broker and use our Free Business Loans Bank / Lender Directory to find every bank in the country lending to small businesses.



If you are looking to start a business - look no further.  Check out the Free Incorporation Guide discussion and the State Incorporation Resource Directory.

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