Does the SBA 504 Loan Require a Business Plan?

do you need a business plan for a 504 loan

If you’ve done some research about applying for a Small Business Administration (SBA) 504 loan, you might be wondering if you need a business plan to complete the application process. Certainly the SBA website offers extensive resources on writing a business plan.

However, while you will need a few basic financial documents, a business plan is not required when you apply for a 504 loan. You might then ask why the SBA discusses business plans on their website and why you would write one. A business plan is extremely useful when growing your business, and even if it’s not necessarily required, it is a great opportunity to show a potential lender you’re worth the investment.

What a Business Plan Is Good For

First and foremost, a business plan benefits you. Even though you don’t need a business plan to apply for a 504 loan, many lenders ask for one. Even if a lender doesn’t ask for a formal business plan, they are certain to require information and documents that are typically contained in a business plan.

A balance sheet, profit and loss statement and cash flow statement are essential financial statements for small businesses. A business plan incorporates those statements into a document along with all of the planning that has gone into your business. It’s a document you can reference or cite in decisive moments, so it should be highly polished, well-formatted and always up to date.

Although business plan templates can contain a wide assortment of information, the SBA guidelines on its website create a fairly standard business plan consisting of the following sections:

  • Executive summary – a brief introduction and description of your business and its products and services.
  • Company description – a discussion of how your company’s unique qualifications and place on the market, and how it meets customer needs.
  • Market analysis – an overview of your target market and your industry’s medium-term outlook.
  • Organization and management – your company’s legal structure and management team. Describe how your team members contribute to the company’s success.
  • Service or product line – a detailed description of your services and products, including how they differ from competitors’ offerings. Talk about product lifecycle, your R&D and your intellectual property.
  • Marketing and sales – how you’ll attract and retain customers and your complete marketing and sales strategies. Describe your market research and your competitors. Wells Fargo has some good advice on researching your competitors.
  • Funding request (if applicable) – details of how much funding you’ll need over the next five years and how you’ll use it, specifying the terms you’d prefer, and future strategic financial plans, such as paying off debt or changing your corporate structure.
  • Financial projections – the place to convince the reader that your business is stable and your project will be a financial success. Include income statements, balance sheets, and cash flow statements for the last three to five years. Provide a financial outlook for the next five years, with forecasted income statements, balance sheets, cash flow statements and capital expenditure budgets. Explain your projections, and match them to your funding requests. This is a great place for charts and graphs. The SBA’s Montana office created a helpful package of material for writing the financial projections section of your business plan.
  • Appendix – supporting documents or other materials, as requested. Common items to include are credit histories, resumes, product pictures, letters of reference, licenses, permits, patents, legal documents and contracts.

For more help with writing your business plan, the SBA has a tool that will take you through the process in small steps and great detail to produce a truly impressive plan. The SBA’s Small Business Development Center and the SCORE program have wonderful resources for business plan writing as well.  

Ultimately, while not necessary for 504 loan applications, a business plan will help you organize your resources and create the best possible business strategy. It will also assure others that you have taken all the necessary steps to prepare yourself and that your plans are sound. A business plan will give you and your lenders a little extra peace of mind as well.

The Documents You Need to Get a 504 Loan

So if you don’t need a business plan to apply for a 504 loan, what documentation do you need? To start, the main documents you will need are three years of your personal and business tax returns, a personal financial statement and interim financials. These should be fairly simple to gather, and won’t take up as much time as putting together a full business plan, so you can get started sooner! Certified Development Companies (CDCs) like TMC Financing can even help you with this step.

These documents alone can be used to prequalify for a 504 loan, which will confirm your eligibility, find out how much you can expect to receive and how much down payment you’ll need.

If you have other questions about obtaining a 504 loan, one of TMC Financing’s 504 loan experts would be happy to speak with you. TMC is an SBA Premier Certified Lender and a high-volume loan provider. With over 35 years of experience, TMC can help you find the financing that is best for you and guide you through the 504 loan process. Contact TMC Financing today.

Barbara Morrison, a local small business advocate and civic leader, founded her first company TMC Financing in 1981. TMC is a Certified Development Company that provides commercial real estate financing to small business owners via the SBA 504 Loan Program. TMC consistently ranks among the top certified development companies nationwide, and has funded projects worth more than $9 billion across California and Nevada. Nearly 5,000 small businesses have benefitted from this financing, resulting in the creation of an estimated 50,000 jobs. TMC is also the No.1 SBA 504 hotel lender in the United States. Barbara is also the founder of Working Solutions, a Bay Area microlender whose mission is to provide micro entrepreneurs, particularly low-income individuals, women and minorities, with the access to capital and resources they need to start a successful business.
Barbara Morrison