Last Updated: February 16, 2024, 1:55 pm by TRUiC Team


How to Do Loans and Investment Projections for Your Small Business

Ch1. 16

Accurate loan and investment projections can make or break the financial success of your small business. This chapter covers techniques for projecting loans and investments, equipping you with the knowledge to plan for sustainable growth.

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Projecting Loans and Investments for Small Businesses

This section will guide you through the process of projecting loans and investments for your small business, covering everything from understanding different types of loans and investments to estimating their impact on your business's financial health. With this knowledge, you'll be better prepared to navigate your business's financial future.

How to Do Loans and Investment Projections of Your Small Business – Transcript

What can you do if you have the best business idea in the world? You've ran the numbers, done the research, monitor the competition, all of it, but you just don't have the funds available to be able to capitalize on your opportunity. Well, you'll need to plan to take out a loan, find an investor, or find other funding for your small business — and in this video, we'll show you how to plan for outside funding for your business like a pro. 

Hey everybody, Will Scheren here from Small Business Startup Guide by TRUiC. This video is part of a larger course dedicated to helping small business owners cut through the noise and get to the essentials of starting and operating their businesses. If that sounds like it would be really useful to you, be sure to like and subscribe. 

Whether your business needs money to make it through the burden of startup financing for growth, to acquire a real estate property, to acquire equipment or other large assets, or for working capital, financing is a needed component of business to understand and plan for. 

If your small business needs to plan to purchase an asset that it can't afford with its cash, the asset can only be purchased by bringing in an outside partner to inject cash into the business in exchange for equity in that business or through debt, like a loan or a credit card. 

Investors will provide a business with cash in exchange for ownership of some portion of the business. The pros from receiving financing from an investor are: you don't have a binding obligation to pay dividends to investors. If the business fails, you don't have to repay the investors. You can gain insight from investors who have experience and industry connections. 

Alternatively, the cons of receiving money from investors are: the business owner must give up a portion of equity in the business which cost the business more in the future if the business is successful. 

Loans are a way to inject cash into your business without having to sacrifice any equity or ownership of the business. In most cases, loans will need to be paid back over a certain number of months. This amount of time is called the loans term. 

With most conventional business loans, a portion of the loan needs to be repaid each month. This is called an installment payment. In exchange for the privilege of borrowing the money, the lender will charge the borrower an interest fee each month. The installment payment will be set up to cover some portion of the interest fees and repay back some portion of the loan. This happens until the loan is zeroed out at the end of the term. 

So with loans, business owners will pay a lender for the privilege of borrowing money. The pros for receiving financing for a loan are: loan debt is flexible, and they can be set up to match your specific needs, loans don't dilute an owner's equity in the business, and lenders don't have any claim on the profits of the business, and debt won't have a lasting impact on your company after you've repaid the loan. And interest on loans is tax deductible. 

Alternatively, the cons of receiving financing from a loan are: loans are financial obligations that must be repaid regardless of the financial position of your business. Loans also raise the break-even point of a business, so you'll need more sales to reach profitability. Loans can impose restrictions on certain business activities and can require some assets of the business to be pledged as collateral, and if the loan has a personal guarantee, the owner could face personal losses in the event of default in loan payment. 

Businesses can also have the opportunity to borrow against a line of credit. This is most commonly done with credit cards. This type of borrowing works very similarly to any other type of loan, with the exception that the borrower is pre-approved to borrow money up to a certain limit. 

When making decisions concerning how to inject cash into a business, between taking on an investor and taking on a loan, business operators should heavily consider the cost of giving away equity in their company, especially if the company is set up to succeed. 

They should more heavily consider the idea of taking on an investor when the investor will bring value to the table outside of the cash that they bring in. Whether the value comes in the form of expertise or a willingness to take a role in the organization that the owners can't fulfill themselves. 

Alternatively, the decision to take out a loan instead of working with an investor must be weighed against the additional risk and financial pressure that the loan will put on the business. 

When planning out financial projections for your business, you want to make sure that your business is set up to seize every opportunity that it's given to grow, while remaining healthy and profitable. To do this, you want to incorporate any needed financing into your financial planning, and if you've been following along with us through planning a small business, you'll know we encourage you to plan your business with LivePlan.com. 

At TRUiC our mission is to offer all our resources and information for free - but we support our work by using affiliate links, meaning we earn a commission on many of the amazing deals we’ve negotiated for you. Full transparency, LivePlan.com is one such affiliate partner. Link in description below. 

To add financing projections to your financial plan, after adding all of your projected business projections in the other financial tables, click on the “Forecast” tab and then click on the “Financing” sub-tab. Here, you'll be presented with options for injecting cash into your business forecast through either loans, investments, or credit cards. 

To add a standard loan to your business plan on LivePlan.com, click on the “Add Loan” button. Then enter the name of the loan and the date that you'll receive it. Then enter the loan amount, the interest rate, and how many months you'll have to pay back the loan. LivePlan will calculate the amortization schedule, determine your payments, and incorporate the correct principal and interest payments into your financial projections. 

Be sure to not add your loan payments as a separate expense. If you did that already, go delete that expense. All you need to do with loans is tell LivePlan about them here, and they'll take care of the payback details in your financial projections. 

To add an investment into your business forecast, click on the “Investment” button. Name the investment. Enter it as a one-time investment or an investment that will have multiple injections of cash over time, and add information concerning when you will receive the investment and how much the investment will be for. 

If you plan to make purchases for your business and pay them off later using credit cards or other lines of credit, put this information into your forecast using the “Add Line of Credit” option. But remember, this is only an entry related to the payment to receive financing. You'll still need to record the purchase in either the “Direct Costs,” “Expenses,” or “Assets” tabs accordingly. 

And if you plan to take out any nontraditional loan with varying installment payments over time or a balloon payment at the end of the loan, do so using the “Add Other” button in financing. 

This video concludes our walkthrough of the financial tables in LivePlan.com. In the next video, we'll be adding financial projections in the financial tables in LivePlan for the imaginary barbershop that we're building out in this course as an example for you to consider as you're planning out your own business. 

This video is part of a step-by-step course that gives business owners all of the essential information to start and operate their business. We've provided a link for you to get access to all of the free and discounted business tools we mentioned in the course below this video. 

Be sure to like and subscribe to get more of this content. We'll see you in the next video, and if you have any questions, let us know.