Introduction

Lenders want to see a cash flow projection that answers a simple question: will this business generate enough cash, when it’s needed, to repay the loan? Beyond totals, underwriters focus on timing, assumptions, and supporting documentation. Clear projections reduce perceived risk and speed underwriting. (U.S. Small Business Administration, sba.gov)

What lenders evaluate — checklist

  • Accuracy and historical consistency

  • Lenders expect projections reconciled to recent financials: bank statements, tax returns, and profit‑and‑loss statements. A projection that ties to 6–12 months of historical cash flow is more credible. (See Preparing Financial Statements for a Small Business Loan Application)

  • Monthly timing and liquidity

  • Monthly granularity matters. Lenders look for months with potential shortfalls and a plan to cover them (line of credit, reserves, or delayed spending).

  • Debt‑service capacity

  • Underwriters test whether projected operating cash covers principal and interest. Many lenders run a debt‑service coverage check and perform sensitivity runs to see how small revenue changes affect repayment.

  • Realistic, transparent assumptions

  • Show the basis for revenue growth rates, payment terms, customer concentration, and pricing. Label assumptions clearly and cite sources (contracts, sales pipelines, or market data).

  • Receivables, payables, and working‑capital details

  • Timing differences between invoicing and collections (AR) and supplier payment terms (AP) can create short‑term gaps lenders watch closely. Demonstrate how you’ll manage receivables and inventory during tight months.

  • Scenario and stress testing

  • Present at least three scenarios: most likely, conservative (downside), and upside. Lenders favor projections that include a downside stress test showing the business can still meet debt obligations under modest revenue declines.

  • One‑time costs and capital expenditures

  • Break out planned capex and nonrecurring expenses. Lenders want to know whether funds requested will finance growth or simply cover operating losses.

  • Supporting documents

  • Attach bank statements, customer contracts, signed purchase orders, historical P&Ls tied to tax returns, and aged receivables. Documentation turns assumptions into verifiable facts.

  • Management and contingency plans

  • Lenders weigh owner experience, backup plans for cash shortfalls (e.g., committed LOC), and whether personal guarantees or collateral will back the loan.

Practical example from practice

In my work advising small businesses, a seasonal retailer gained approval by delivering a monthly 12‑month projection that: (1) reconciled to 12 months of bank statements, (2) showed a temporary November–January cash dip covered by a short, committed line of credit, and (3) included vendor letters confirming extended payment terms. That clarity removed lender doubts and shortened underwriting time.

How to strengthen your projection before applying

  1. Start with clean historicals: reconcile your last 12 months of bank statements to your bookkeeping. (See Preparing Financial Documents for Small Business Loan Applications.)
  2. Use monthly line items for sales, COGS, operating expenses, payroll, taxes, and loan payments.
  3. Document every assumption: attach invoices, contracts, and pipeline reports.
  4. Show scenario results and required ratios (e.g., projected month‑end cash balance and coverage of scheduled debt service).
  5. Be conservative on timing—assume slower collections and earlier payments to suppliers in downside scenarios.

What lenders won’t like

  • Vague assumptions without backup (“we expect sales to jump 30% with no explanation”).
  • Projections that ignore seasonality or one‑time expenses.
  • Inconsistency between tax returns and internal P&L figures.

Useful resources

Professional tips

  • Keep one conservative month‑by‑month schedule that you can export to PDF and attach to loan applications.
  • If you use spreadsheets, include a one‑page executive summary with key metrics: peak cash shortfall, projected month‑end cash, and the earliest month you need the loan funds.
  • Anticipate lender questions and answer them in footnotes: customer concentration, largest receivable, and planned marketing spend.

Disclaimer

This article is educational and not personalized financial advice. For tailored guidance, consult a CPA or small‑business lender or an advisor familiar with your industry and financials.

Authoritative citations: U.S. Small Business Administration (sba.gov); Investopedia; FinHelp internal guides cited above.