By creating a business plan for a loan, you can highlight the various characteristics that lenders use to evaluate borrowers. As a result, you will be able to fund your startup in a better manner. Once you create a well-written business plan, you will be in a better position to persuade lenders to invest in your business. Hence, the chances of your approval of the loan will be very high.
In this article, you will learn about the importance of business plans for obtaining loans for starting a business. Furthermore, you will also learn about the major constituents of a business plan. In addition to that, we will also guide you on what to avoid while writing your business plan. Finally, we will share with you what lenders look for in a business plan for approval.
Business Plan For A Loan: Why Do You Need It?
Simply put, if you go to a lender to ask for a loan, the lender will ask you to show your business plan. Think: why would a lender offer a loan if the businessperson does not have a plan for the business?
Hence, in a loan application, most lenders will ask you to include your business plan in addition to other documents. You have to include all these documents in your loan application.
But what is a business plan anyway?
According to Investopedia,
“A business plan is a document that explains what a company’s objectives are and how it will achieve them. It contains a road map for the company from a marketing, financial, and operational standpoint. Some business plans are more detailed than others, but they are used by all types of businesses, from large, established companies to small startups.”
Basically, your business plan lays out your business strategy and how you (as a business owner) plan to use the loan for your business. With the use of the business plan, you are showing lenders that your business is already producing income. Furthermore, it also shows that the business can continue to do so in the future.[On a side note, to have a good idea of the different types of small business loans, consider clicking on the link given.]
How Much Time Does It Take?
The amount of time it takes to write a business plan depends on the type of business you have. However, you must take more time than usual to ensure that all information that you put in the business plan is correct.
The Forbes Advisor adds –
“A successful business plan outlines your entire business and effectively explains how it makes money and why it’s likely to succeed. This is especially important if you’re trying to get a small business loan.”
Realize that the business plan will provide a strategic focus for your business in addition to the loan application process.
What Does A Business Plan For A Loan Include?
The following are some of the major sections that you need to include in your business plan:
1. Executive Summary
It is the summary of the information that the rest of your business plan consists of. Hence, we recommend you leave space and create this section at the end.
2. Company Overview
Here, you will need to focus on the core strengths of your business. Also, include the types of problems your business plans to solve and the plan of the implementation process.
3. Products And Services
Provide details of what your business deals with in the business plan for the loan – the products and services that your business offers to customers.
4. Market Analysis
This section is the most important part of your business plan. Here, you have to demonstrate your understanding of the market.
5. Sales And Marketing Plan
Here, you will have to show details about what customers you are looking to attract. Also, explain how you plan to implement those in your operations.
6. Operational Plan
This shall include the basic requirements for starting the business and how your business operations must go on.
7. Management Team Overview
Business Plan for a Loan includes Management Team Overview, here you will need to ensure to the lender that your business consists of an experienced, skilled, reliable, and competent management team.
8. Funding Request
This includes your request for the loan and how much money you are planning to borrow from the lender. Also, you must explain how you plan to use the funds and how certain usage will increase your business’s profitability.
9. Financial Statements
One of the significant steps in creating a proper business plan is to develop a section of business financial planning. Here, you will need to work with a financial planner and accountant to ensure that every detail is correct and proper.
Avoid This While Writing A Business Plan
According to NerdWallet,
“A successful business plan for a loan describes your financial goals and how you’ll achieve them. Although business plan components can vary from company to company, there are a few sections that are typically included in most plans. These sections will help provide lenders with an overview of your business and explain why they should approve you for a loan.”
The most common mistake that you must avoid while writing a business plan is to be unrealistic. Be absolutely realistic about the potential for business growth in the near future.
What Does Lenders Look For In A Business Plan For A Loan?
The following are the major things that lenders look for in a business plan:
- Character of you and your company.
- Your ability to repay the loan within the given period of time.
- The amount of capital that your business already has.
- Whether your business has a good position based on market conditions.
- Information on your assets so that you are able to provide collateral.
Hope this article was helpful for you in getting a better idea of how to create a business plan for a loan. Hence, consider having all the aforementioned factors in mind while you are making a business plan. Basically, with the help of your business plan, you will need to convince the lender to offer you a business loan.
Do you have further information to add? Please share them with us in the comments section below.