A use of funds statement is a one page breakdown of what the loan will buy, how much each item costs, and how that spending pays the loan back. Lenders ask for it because purpose is the best predictor of whether the money comes back. Your broker uses it to decide which product, and which lender, fits the request.
Most owners write one sentence: "working capital and growth." That sentence sends a file to the most expensive corner of the market. A clear page can send it to a cheaper one.
Why lenders care about purpose
Lenders want to see that the money will earn its own repayment. SouthState Bank notes that financing which generates future cash flow tends to be viewed more favourably than funds for renovations, because the lender can see where the payments will come from.
Purpose also determines what is allowed. The SBA lists the eligible uses of 7(a) proceeds: real estate, short and long term working capital, refinancing business debt, machinery and equipment, furniture and fixtures, and changes of ownership. SBA Form 1919 asks how the business will use the loan, and the SBA 7(a) Loans guide notes that more than $10,000 of construction triggers a separate SBA Form 601.
You are not alone in the reasons you borrow. The Federal Reserve's 2025 Small Business Credit Survey found that among firms that applied, 56% wanted to meet operating expenses, 46% to refinance or pay down debt, 42% to expand or buy business assets, 28% to have credit available for later and 26% to repair or replace capital assets. Each of those reasons points to a different product.
The template
Keep it to one page with five parts.
1. The request in one line. "We are requesting $X to [specific purpose], to be repaid from [specific source] over [term]."
2. The line items.
| Item | Amount | Backup |
|---|---|---|
| Item one | $ | Quote, invoice or estimate |
| Item two | $ | |
| Contingency, if any | $ | |
| Total | $ | Matches the request exactly |
3. Your contribution. Cash you are putting in, trade-in value, or a deposit already paid.
4. The payback logic. What revenue or savings the spending produces, when it starts, and how it covers the payment. Two or three sentences with numbers.
5. Timing. When you need the money, and what happens if it arrives late.
Attach the quotes. A broker can place a $250,000 equipment request with a vendor quote in a day. Without one, the lender will ask, and the clock stops.
Example one: $250,000 for equipment
A precision machining shop wants a five-axis CNC machine.
Request: $250,000 to buy and install one five-axis CNC machine, repaid from new contract revenue over 60 months.
| Item | Amount |
|---|---|
| Machine, per dealer quote | $238,000 |
| Freight and rigging | $7,500 |
| Installation and training | $4,500 |
| Total | $250,000 |
Contribution: $25,000 down payment from cash on hand, reducing the financed amount to $225,000.
Payback: The machine lets the shop accept an aerospace parts contract worth $22,000 a month in gross profit, signed and attached. The monthly payment on $225,000 is roughly $4,600.
What the broker does with it: This is a clean equipment financing file. The machine is the collateral, the contract shows capacity, and the down payment shows capital. The broker sends it to equipment lenders, not working capital funders, and the owner avoids paying daily debits on a five-year asset.
Example two: $60,000 working capital line
A commercial cleaning company has won two new office contracts that pay net 45. It needs to cover payroll for the gap.
Request: a $60,000 revolving line of credit to fund payroll and supplies for new contracts until customer payments arrive, repaid as invoices are collected.
| Item | Amount |
|---|---|
| Payroll for 8 new staff, 6 weeks | $43,000 |
| Supplies and equipment for two sites | $9,000 |
| Uniforms, vehicle wrap, onboarding | $3,000 |
| Cushion for slow payers | $5,000 |
| Total | $60,000 |
Payback: The two contracts bill $38,000 a month combined. Draws are repaid each time invoices clear, so the balance should cycle back toward zero every 45 to 60 days.
What the broker does with it: The purpose is temporary and self-liquidating, so a line of credit fits better than a term loan. Because the gap comes from slow paying commercial customers, the broker may also show an invoice factoring option. Without the statement, this owner might have taken a merchant cash advance and paid for a full year to solve a six-week problem.
Example three: $480,000 to buy a competitor
A plumbing company wants to acquire a retiring owner's business across town.
Request: $480,000 to acquire the assets and customer list of a competing plumbing company, repaid from the combined cash flow over 10 years.
| Item | Amount |
|---|---|
| Purchase price, per signed letter of intent | $420,000 |
| Working capital for the first 90 days | $40,000 |
| Legal, valuation and closing costs | $20,000 |
| Total | $480,000 |
Contribution: $48,000 in cash from the buyer.
Payback: The target earned $135,000 a year in seller's discretionary earnings over the last three years, per its tax returns. The combined business keeps one office and one dispatcher, saving about $60,000 a year.
What the broker does with it: A change of ownership is an eligible SBA 7(a) use, and a 10 year term keeps payments low enough for the combined cash flow to cover. The broker routes this to SBA lenders and plans for the longer SBA timeline from the first call.
How the statement changes the product
| What your statement shows | Product the broker leans toward |
|---|---|
| A specific asset with a quote | Equipment financing or equipment lease |
| A short gap that pays itself back | Line of credit or invoice factoring |
| Inventory for a known selling season | Inventory financing or seasonal line |
| A long-term asset, acquisition or real estate | SBA 7(a) or bank term loan |
| Refinancing expensive short-term debt | Term loan or SBA refinance |
| Emergency cash with no clear payback | A hard conversation before any product |
On inventory, Ramp notes that lenders typically advance 50% to 80% of inventory value, so a statement that lists the inventory and its cost lets the broker size that option correctly.
Mistakes that weaken the statement
- Round numbers with no backup. "$100,000 for marketing" invites a decline. "$42,000 for a six-month ad campaign, per agency proposal" invites questions you can answer.
- Mixing long and short uses. Putting a truck and payroll in one request pushes both into the wrong product. Split them.
- No contingency, or too much. A modest cushion on a project reads as prudent. A cushion close to half the project reads as unplanned.
- Totals that do not match. The table should equal the request to the dollar.
- Hiding a refinance. If part of the money pays off an existing advance, say so. Lenders will see it in your bank statements anyway.
Send it before the first call
Write the statement before you speak to a broker and attach it to your first email. It turns the first call from a fact-finding session into a strategy session, and it shows the broker you are a serious borrower worth their best lenders. When you are ready, describe your deal once and let the register match you with brokers who place requests like yours.
Questions owners ask
What is a use of funds statement?
A short document that lists exactly what the loan will pay for, line by line with dollar amounts, and explains how that spending will help the business repay the loan.
How detailed should it be?
Detailed enough that every dollar of the request is assigned to a line, with quotes or invoices behind the big items. One page is usually enough.
Can I change how I use the money after funding?
For working capital products there is usually flexibility. SBA and equipment loans are tied to the stated use, so changes need the lender's approval.