When applying for a business loan, you’re often required to provide a 24-month financial projection. This requirement might seem arbitrary or even bothersome, especially for busy entrepreneurs. However, it serves an essential purpose for both you and the lender. Here’s why.
Risk Assessment
Lenders are in the business of risk management. When they lend money, they want to be reasonably sure they’ll get it back. Your 24-month projection provides valuable insight into your business’s future and its ability to repay the loan.
Understanding Your Business
A detailed projection shows that you understand your business. It reflects your expectations about sales, costs, and the external factors that could affect your operations. Lenders need this information to understand your business as well as you do.
Viability and Growth Potential
Your 24-month projection provides a snapshot of your business’s viability and potential for growth. Lenders are more likely to invest in businesses that demonstrate strong potential for growth and stability.
Cash Flow Management
Cash flow is a crucial determinant of your business’s health. Your projection helps the bank understand when and how you expect to generate the cash needed to repay the loan. It can also highlight any potential cash flow problems that need to be addressed before a loan can be issued.
Contingency Planning
Lastly, your 24-month projection can illustrate how your business might handle unexpected situations. By showing how your business can adapt to changes, you demonstrate to lenders your preparedness to manage potential risks, enhancing their confidence in your business.
While creating a 24-month projection may seem like a daunting task, it’s an invaluable tool for securing financing and planning your business’s future. And remember, seeking professional advice can be very beneficial during this process.
Are you in need of capital for your business, but tired of the endless paperwork required by traditional banks? Our pre-qualification process for a credit line ranging from $5,000 to $1MM is straightforward and designed with small and medium-sized businesses in mind.
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