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ProjectionHub

How to Get More Out of Your SBA Microloan Pre-Loan TA

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One of the largest challenges for SBA Microlenders is the fact that only 25% of your Technical Assistance Grant funding can be used for pre-loan technical assistance.  As the Director of Microlending at an SBA Microloan Intermediary, I found that I was spending most of my time with clients on the pre-loan TA side, trying to help them create financial projections for their loan application.

Our microloan committee wants to see financial projections as part of the loan application from all of our borrowers, but most of our microloan borrowers do not have an accounting degree, or experience creating realistic, data-driven financial projections.  In the past, I would provide the business owner with an Excel spreadsheet template to fill out that would then automatically generate financial projections, but 9 out of 10 templates came back to me incorrect.

The problem is that the average business owner does not understand concepts like:

  • Cost of Goods Sold
  • Depreciation
  • Loan Amortization, etc

There is no easy way to explain these concepts within the Excel template, so I found myself explaining the same concepts over and over again, which ultimately uses up all of our Pre-loan Technical Assistance hours very quickly.  We figured that there had to be a better way, so we decided to create a web application called ProjectionHub.

ProjectionHub is a web-based application that helps business owners create financial projections without the need to have a PhD in spreadsheet modeling.

We have started to use ProjectionHub for all of our microloan applicants.  The results have been excellent.  The quality of the projections has improved, the amount of time I need to spend counseling each business owner has decreased substantially.

Why does it work?

1.  We try to keep our language simple.  You don’t have to be a CPA to understand what we are asking in each question.

2.  We include instructional videos for the most difficult subjects.  We are constantly adding new instructional videos, but we have already developed videos that explain:

  • How to create sales projections
  • How to calculate cost of goods sold
  • How to determine depreciation

How to Get a Loan for a Software Startup

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As the Director of an SBA Microloan Program, I get a number of microloan requests from software developers looking for a small loan to build their software application.  This is not an easy type of loan to fund.  Traditionally, software startups secure funding from investors or friends and family, but it is possible to secure a loan for a software startup.  So today I wanted to provide 3 tips on how to secure a small loan for software development.

1.  Have a Backup Plan – I think the most important factor in your loan application is a section where you outline your backup plan.  Providing a loan to help fund software development is incredibly risky.  What if you spend all of the loan money, build the software product and find out that your potential customers are not willing to pay for the product?  Since you have no proven sales, you are going to need to demonstrate a backup plan to the lenders.

If you are a software developer in 2012, I am sure you are able to find work.  You may have a day job now, or work on a project by project basis as a freelance developer, but ultimately you should be able to find work if your startup fails.  If you can prove that you have generated enough personal income in the past to make the loan payments, and show that you are willing to go back to a day job if the business fails, you should be able to put the lender at ease.

2.  Prove the Market – You need to prove, as best you can, that there is a market for your product.  There are a number of ways to do this:

  • Competitors are Profitable – Maybe the software you are developing is a direct competitor to a company who is already profitable.
  • Google Adwords Keyword Tool – You can use the Google Adwords Keyword Tool to find out how many people are searching for keyword phrases related to your product.  For example, the ProjectionHub software helps entrepreneurs create financial projections, and we know that each month there are approximately 15,000 searches on Google alone for the keyword phrase “Financial Projections”
  • List of Interested Customers – Maybe you set up a 1 page website with a form for potential customers to fill out if they are interested in your software when it launches.  If you are able to generate significant interest from your pre-launch page, then there is probably a market.


3.  Pre-sales  – You might be able to talk to potential customers and actually have them sign a letter of intent that states they plan to purchase access to your software once it is completed.  These letters will immediately prove the market to the lender, and help them run some preliminary numbers to determine whether or not you will be able to pay back the loan based on those projected sales.

Getting a loan for a software startup is not easy, but it is possible if you position yourself the right way.
You can get started with your loan application today by creating a set of financial projections for free using ProjectionHub.  Good luck!