9 Budgeting and Financial Forecasting Tips to Impress Lenders
When you’re applying for a small business loan, your business plan and financial projections aren’t just paperwork, they’re a window into how well you understand your business. According to Hugo Aguinaga, Technical Assistance Specialist at Michigan Women Forward, too many entrepreneurs submit outdated, vague, or unrealistic budgets and forecasts that ultimately weaken their case for funding.
“Your financial forecast is more than a guess. It’s an opportunity to demonstrate that you understand your numbers and can plan for the future,” Aguinaga says. “Even if you’re just starting out, there are ways to build thoughtful projections that help lenders trust in your business.”
Below, Aguinaga shares common mistakes he sees and the top tips to avoid them, so you can strengthen your loan application and set your business up for lasting success.
1. Start with Proof of Concept
If you’re already in business, your best forecasting tool is your past performance. Yet many applicants don’t analyze their historical growth before making projections.
“One of my favorite quotes is: the best predictor of the future is the past,” Aguinaga says. “If you’ve grown steadily over the past three years, you can reasonably project similar growth into the future.”
For startup businesses, the challenge is tougher. Experience in an industry (like working as a personal trainer) doesn’t always translate to running a business (like opening a gym). You’ll need to conduct additional research to validate your numbers with actual quotes, signed contracts, or detailed customer surveys.
2. Break Down the Numbers Behind Your Revenue Goals
A common mistake Aguinaga sees: entrepreneurs choose a revenue target based on their hopes, not on math.
“Someone might say, ‘I want to make $100,000,’ but they haven’t done the work to show how they’ll get there,” he explains. “We sit down and look at things like product pricing, number of units sold, hours open, and realistic volume.”
For example, if you run a food truck and want to earn $100,000 a year, but your average ticket is $8 and you sell 20 items a day, you’ll fall well short unless your volume or pricing increases significantly.
3. Don’t Rely on Generic Industry Data
Some entrepreneurs use AI-generated plans or industry-wide stats like “this is a $100 billion industry” to back up their forecasts. But Hugo warns that this approach rarely holds up.
“Saying ‘If I just get 1% of the market’ doesn’t mean much unless you’ve shown there’s real demand in your specific area,” he says. “It’s about what the market can support where you are.”
4. Itemize Your Startup or Expansion Costs
Whether you’re opening a storefront or expanding your business, lenders want to see a full breakdown of your total project costs.
“Entrepreneurs often pick a number like $50,000 because that’s what their friend spent in another city or in another industry,” Aguinaga says. “But unless you’ve gathered quotes or bids to back it up, it’s just a guess.”
Include costs for equipment, renovations, licenses, legal fees, insurance, working capital, and unexpected expenses like repairs or price hikes due to tariffs.
5. Be Honest About Staffing and Salaries
“People underestimate salaries and wages all the time,” Aguinaga says. “They think they can pay someone $10 an hour, but even fast food stores pay more than that now.”
Underestimating labor costs can dramatically skew your forecast. Aguinaga encourages business owners to research realistic pay rates and factor in taxes, benefits, and turnover.
6. Separate Personal and Business Expenses
Too many business owners co-mingle personal and business funds, which makes it difficult to see how the business is really doing.
“People tell me they’re not paying themselves, but then I see charges for haircuts, groceries, or vacations in the business account,” Aguinaga says. “Even legitimate personal branding expenses add up.”
Track draws carefully and maintain separate budgets for your personal and business finances.
7. Revisit Your Budget Monthly
“Once a month, no ifs, ands, or buts,” Aguinaga says. “You can’t manage what you don’t measure.”
He recommends comparing your actual revenue and expenses to your projections each month, then adjusting accordingly. “It doesn’t have to be a huge project. Once you have a process, it should take under an hour.”
8. Budget for Contingencies
Surprises happen — and failing to plan for them can sink your business.
“Inflation, tariffs, repairs, delayed permits — all of these can eat into your budget quickly,” Aguinaga says. “Build in a cushion. For example, if material costs are rising, plan for a 20% increase in cost of goods sold next year and see if you’re still profitable.”
9. Reconcile Bank Statements to Understand Cash Flow
“If you only do one thing, reconcile your bank statement every month,” Aguinaga advises. “It tells you what your cash position really is.”
Profit and loss statements can be misleading without context. Cash flow is the true test of your business’s financial health and the key to understanding whether you can take on new debt.
The Bottom Line: It’s About More Than Loan Readiness
While strong financials help you get approved, budgeting and forecasting are ultimately about building a business that works.
“This isn’t just about impressing a lender. It’s about knowing your business and setting it up for long-term success,” Aguinaga says.
Michigan Women Forward offers support before and after the loan, including personalized coaching and financial statement analysis. As Aguinaga puts it, “We’re not just trying to get people loan-ready, we’re helping them build a roadmap for a successful business.”
