Detailed Use of Funds – Use of Proceeds
Providing the Detailed Use of Funds is critical in all business plans. When pursuing business capital, the desired use of the proceeds received from a business loan or venture capital transaction is detailed in the Business Plan. After the executive summary, which provides a broad overview of the project, the next page should be a statement for the Detailed Use of Funds.
Investors and lenders want to know the funding request is based on a well thought out plan. The Detailed Use of Funds provides the funding source insight into where the capital will be going. If the detail is not provided, it will appear the funding request does not have a solid foundation.
Consequently, the word “Detailed” in the term means that the statement should provide a clear and concise break down of the use of proceeds. A statement that is general and vague won’t be acceptable.
If the funds will be used to purchase equipment, then the manufacturer, equipment type, model number, etc., should be listed and each piece of equipment priced. If there is going to be shipping, installation fees, and sales taxes then funds for those expenses also need to be specified.
When there is an acquisition of a business, the business plan and funding request will include amounts for real estate, equipment, inventory, and goodwill. Each category should be broken out and supporting documentation in the business plan will provide the sound reasoning of why the items have that value. Real estate appraisals and business valuations will also be part of the supporting documentation.
Therefore, when the total amount needed to fund the project, adds up to $1,234,567.89, this is a specific amount the Lender will use to base their calculations on. If instead the Funding Request is for $3 million…..where is the rest of the money going? The rest of the business plan should support the Detailed Use of Funds statement. To be successful at obtaining the required funding be clear, concise, and specific.
Tips – for Detailed Use of Funds
1. The use of proceeds for frivolous items, day dreams, or to pay back the start-up capital is not going to be satisfactory to a funding source.
2. Will there be expenses for signs on the building, environmental permits, title searches, leasehold improvements, professional fees, or other onetime expenses? If so, include them. Don’t make the funder guess.
3. Funding Sources may limit the amount that can be allocated to working capital. Know your sources when developing your business plan.
4. Eligible use of proceeds for SBA Loans: https://www.sba.gov/sites/default/files/Use%20of%20Proceeds%20in%20SBA%20Loan%20Programs_0.pdf
When you have questions about writing a business plan don’t hesitate to contact us.
To Your Capital Success,
Specialist in Targeted Acquisitions, Business Funding, and Growth Strategies.