How to Write a Use of Funds Statement for Your SBA 7(a) Loan
What Is a Use of Funds Statement?
A use of funds statement is a section of your business plan that details exactly how you intend to spend the loan proceeds. It is one of the first things an SBA lender reviews because it answers the most basic question in any lending decision: what is this money for?
The SBA requires that all 7(a) loan funds be used for a "sound business purpose." That is a broad standard, but it means your use of funds cannot be vague. Saying you need $350,000 for "business expenses" will not satisfy any underwriter. You need to show, line by line, where every dollar is going.
Why It Matters More Than You Think
Most applicants treat the use of funds statement as a formality. That is a mistake. For lenders, this section serves three distinct purposes:
It demonstrates planning. A borrower who can break down a $400,000 loan request into specific line items with realistic cost estimates has clearly done the work. A borrower who writes two sentences has not. It ties directly to your financial projections. Your projected revenue, expenses, and cash flow should be consistent with how you plan to deploy the loan funds. If you are requesting $150,000 for equipment, your projections should reflect the corresponding depreciation, maintenance costs, and productivity gains. Inconsistencies between use of funds and projections are a red flag. It determines the loan structure. Different uses of funds qualify for different loan terms. Real estate purchases can be financed over 25 years. Equipment over 10 years or the useful life of the asset. Working capital over 7 to 10 years. The lender needs your use of funds breakdown to structure the loan correctly.How to Format Your Use of Funds Statement
There is no single required format, but the most effective approach combines a summary table with supporting narrative. Here is how to structure it.
The Summary Table
Start with a clean table that lists every major category of spending, the dollar amount, and the percentage of total loan proceeds. For example:
| Use of Funds | Amount | % of Total |
|---|---|---|
| Leasehold improvements | $120,000 | 34.3% |
| Equipment and fixtures | $85,000 | 24.3% |
| Initial inventory | $45,000 | 12.9% |
| Working capital (6 months) | $60,000 | 17.1% |
| Licenses, permits, and fees | $12,000 | 3.4% |
| Marketing and grand opening | $18,000 | 5.1% |
| Closing costs and SBA guarantee fee | $10,000 | 2.9% |
| Total | $350,000 | 100% |
The Supporting Narrative
Below the table, provide a paragraph or two for each major line item. This is where you explain the "why" behind each number and show that your estimates are grounded in reality.
For leasehold improvements, describe the specific work being done: demolition, electrical upgrades, plumbing, flooring, signage. Reference contractor bids or estimates if you have them. If you are buying equipment, list the specific items and their prices. For working capital, explain what expenses it covers (rent, payroll, utilities, insurance) and how many months of operating runway it provides.
The goal is to make the lender feel that these numbers were built from the bottom up, not estimated from the top down.
Common Mistakes to Avoid
Being Too Vague
"Working capital: $200,000" with no further explanation is the most common problem. Working capital is a legitimate use of funds, but you need to define what it covers. Break it down into rent, payroll, insurance, utilities, supplies, and other recurring costs. Show how many months of runway it represents.
Forgetting the SBA Guarantee Fee
The SBA guarantee fee is a real cost that gets rolled into most 7(a) loans. It typically ranges from 2% to 3.75% of the guaranteed portion for loans over $150,000. If you are requesting $500,000, the guarantee fee could be $10,000 to $15,000. Include it in your use of funds. Leaving it out suggests you are not familiar with how SBA loans work.
Mismatch With Your Financial Projections
If your use of funds says you are spending $85,000 on equipment, your balance sheet projections should show that asset. Your income statement should reflect the depreciation. Your cash flow statement should show the timing of the purchase. Lenders cross-reference these documents, and inconsistencies erode confidence.
Padding the Numbers
Some applicants inflate their estimates to create a cushion. Lenders see this regularly. If a commercial kitchen equipment package typically costs $40,000 to $60,000, requesting $90,000 will prompt questions. Use realistic estimates and cite your sources. Vendor quotes, online pricing, or industry benchmarks all work.
Omitting the Equity Injection
For most SBA 7(a) loans, the borrower needs to contribute 10% to 20% of total project costs from personal funds. Your use of funds statement should clearly show both the loan portion and the equity portion. Lenders want to see that you have skin in the game.
A Note on Startup vs. Existing Business
For startups, the use of funds statement carries extra weight because there is no operating history to evaluate. Your projections are estimates, and your track record in this specific business is unproven. The use of funds statement is one of the few places where you can demonstrate concrete, verifiable planning. Get quotes. Research costs. Be specific.
For existing businesses, the use of funds should connect clearly to a growth strategy or operational need. You are expanding to a second location. You are purchasing equipment to increase capacity. You are refinancing high-interest debt to improve cash flow. The lender wants to see that the loan will generate enough additional revenue or savings to cover the new debt service.
How FundedPlan Handles Use of Funds
When FundedPlan builds an SBA-ready business plan, the use of funds statement is one of the core financial components. Every line item ties directly to the five-year financial projections, the balance sheet, and the cash flow forecast. The numbers are consistent because they are built from the same underlying model.
If you are preparing an SBA 7(a) loan application and want a business plan with a use of funds statement that holds up to underwriter scrutiny, FundedPlan can help. The output is lender-ready from day one.
If you need a professionally written SBA 7(a) business plan, FundedPlan delivers in 5 days for $1,500 flat rate. Get started here.