How to Write a Business Plan for a Loan?
Posted on: July 6, 2022 | Category: Small Business Loans·US Business Funding
A business plan is a must-have for any loan proposal application. It will show that you have a clear growth and marketing strategy supported by financial data, research, and product plan, but it will also guarantee that your lender matches you to the appropriate loan plan based on your requirements, objectives, and financial predictions.
Certainly, financial institutions and loan officers will consider the usual elements that all bank loan applicants must fulfill, such as assets, credit score, and credit history. However, you will also have to show the business plan to the business loan lenders.
They will use it to study whether your business is practical and long-term. Indeed, they use the plan to examine all areas, including financial documents, sales strategies, and your overall financial plan, to determine its feasibility.
Your financial estimates are critical; a solid business plan will include several years’ worth of sales and profit projections (if available). It will also anticipate sales and profitability for the next three to five years.
Furthermore, the lender will also look at how competitive your target market is and who your key management team members are. This data, along with a lot more, is utilized to assess your company’s prospects of success. This will help you to succeed and make loan payments to the lender in the end.
What is a Business Plan?
A business plan is a document that outlines a company’s goals and how it intends to achieve them. From an operational, financial, and marketing aspect, this plan ensures a robust path for the company.
Startup businesses, small businesses as well as established ones leverage business plans to their benefit. A company’s go-to-market strategy, financial projections, market analysis, corporate purpose, and mission statement are all outlined in the business plan.
A business plan is a critical document that is intended for both the external and internal audience of a company. This document, most critically, is used to seek investment or to acquire a loan from a financial institution.
When you are researching how to write a business plan for a loan, make sure it is concise and easy to understand for lenders or private investors. Furthermore, developing a business outline also benefits you as the owner.
A well-researched business plan serves as a road map for your company. You can use the previous financial information and predictions that the plan document has as a guide to see if you’re on track.
When small business owners go to a bank or financial institution to seek a small business loan, the business plan is usually one of the first documents the lender requests. Thus, knowing how to prepare a good business plan for small business loans is critical to persuade lenders.
A viable business plan for business loans shows the lender that you have structured your business vision and considered the business through. If you gather your facts and organize them logically, you can draft a business plan quickly and easily.
What Are the Different Types of Business Plans?
There are different types of business plans. However, your business niche, competitive landscape, and funding objectives will all influence the type of business plan you need to develop when asking for a business loan.
1. For Business Acquisition:
Any business that is planning to acquire an existing company or set up will almost certainly necessitate funding. When you write a business plan for an acquisition, outline the company’s history, strengths, and financials, as well as how you aim to make it even more profitable.
If you already own a business, the plan document for your business should include information about market analysis, management teams, and finances of that company. Additionally, it must mention how the acquisition will benefit your current operation.
2. For An Already-Existing Business:
Do you already have a business and need a loan to grow into new markets or products, buy equipment, or access working capital?
You may be required to write a plan for your business as part of your loan application. This, however, depends on where you are applying.
This type of strategy includes hard data regarding your company’s present achievements and market analysis. Furthermore, it also includes the financial projections for how the proposed loan will help you accomplish future financial goals and continue to grow.
3. For A Startup Business:
A well-written startup business plan might assist persuade lenders that you have what it takes to win when you seek a loan to start a new business. When you write a plan for your business, additionally, it also assists you in identifying all of the processes involved in starting a business, giving you a handy road map to follow when you launch your company.
Sharing your extensive market analysis, praising your seasoned management team, and providing excellent financial and sales estimates will make lenders believe your firm will swiftly turn a profit and repay the loan.
Why Do You Need a Business Plan to Get a Business Loan?
Traditional lenders often require a plan for your business, despite the fact that some lenders do not. Consider developing a plan for your business at the price of gaining access to banks’ and lenders’ advantageous business loan terms and reduced interest rates.
Every lender wants to know that your business idea is sound and will generate the earnings you need to repay them before giving you the financing.
Writing a business plan for your loan proposal is your chance to demonstrate to the lender that you know your company. You know your business’s competencies and how it functions within the market.
The lender should have no difficulty understanding how you obtained all the data mentioned in the document. Also, he or she should be able to easily grasp what are your future plans if you put together a clear and comprehensive document.
A business plan is also beneficial from the standpoint of the lender. It is because the traditional business plan allows the lender to ask you questions and clarify things that may not be apparent from your application documents alone.
Thus, the lender will leave the meeting with you having a clear idea of who he or she is lending money. Plus, how probable it is that the loan will be repaid.
How to Write a Business Plan to Get Approved for a Loan?
A well-thought-out and well-written business plan can be quite valuable to a business. While you can utilize free templates to construct a business plan template, you should aim to avoid creating a generic outcome.
Start with the basics and include any financing requests in your proposal. The primary body of your plan should be between 15 and 25 pages long.
Section 1: Executive Summary
The executive summary serves as a snapshot of your business plan, providing a quick understanding of what you’re proposing. It must cover the following information:
● A statement explaining why you require business financing.
● Details on how much funds you need, when you will repay it, and the interest rates.
● Overview of how you will use the loan proceeds.
● Financial information from your company’s past and future.
● If you succeed, the projected impact on your firm and the industry as a whole.
Section 2: Company Description
This covers fundamental information about your company and your long-term goals:
● Company description includes the business structure, whether it is a partnership, limited liability company, corporation, or anything else.
● Operational timeline
● Size of workforce
● Past year achievements or landmarks
● The expansion plan, if any.
● Primary competitors, and how does your business vary from them?
● What adjustments will you make to outperform these rivals?
Section 3: Industry Analysis
This mentions details about your industry as a whole. Additionally, it might also contain information about your particular market segment. Make sure to draw attention to it if your business operates in a very specific segment of the industry.
● Pluses and minuses of your industry.
● Approach to compete and sustain in the industry.
● Industry trends that may influence its success or potential difficulties in the future.
Section 4: Customer Analysis
● The various customer segments and your target market.
● Number of potential customers in your target audience.
● How much do you anticipate your consumers will spend now and in the future, on average?
● The causes of the trends or changes. How will it affect your business?
This part of your business plan aids a lender in comprehending your customer base and why they choose to do business with you.
Section 5: Competitive Analysis
● Strengths of your rivals.
● Areas where they fail to live up.
● Your plan to stay ahead of them.
● Your business’s competitive advantages over your rivals.
Section 6: Marketing Plan
This covers a detailed description of the marketing strategy you intend to employ:
● Customer acquisition cost (CAC).
● Marketing strategy, advertising tactics, and budget to reach potential customers.
● Designated personnel to each marketing plan and cost estimate.
Section 7: Operations Analysis
● Current operational plan and how it will help you to repay the loan amount.
● Your company’s strengths and weaknesses.
● What changes have you made in the last 12 months that have resulted in more revenue, lower costs, or increased efficiency?
● How will you use the loan amount to keep your business running smoothly?
Section 8: Team
This includes details about your workforce and its structure:
● Qualifications of the team members.
● Responsibilities of each team member.
● Change in their roles and positions as you receive the loan amount.
Section 9: Financial Plan
This segment covers the financial statements of your company. Certainly, it includes how much profit (or loss) the business will make. Furthermore, this includes cash flow statements, projected income statements, and projected balance sheets. You can make assumptions on how much loan amount you will get and then plan accordingly.
Incorporate a five-year break-even analysis along with an overview of how your business arrived at the mentioned income statement and cash flow estimates. In your financial plans, don’t forget to add the interest and loan payments.
Section 10: Appendix
This is the last segment of your business plan. It includes supporting documents for your business plan’s claims and statements.
● Loan agreement.
● Financial statements with break-even analysis and other projections.
● Organizational chart
● All business licenses, permits, and other approvals that your company currently possesses or has applied for.
● Management team members’ resumes.
● Copies of necessary contracts, leases, and other agreements for your business strategy.
● Financial statements and estimates.
● Pertinent training certificates.
Tips for Writing a Business Plan for a Loan
● Know exactly what information your loan officer is searching for. Furthermore, make sure to find out where to source the information in order to submit a successful business plan.
● Proofread and update your business plan thoroughly before submitting it. A lender may question your attention to detail if there are errors in your business plan.
● As some loan officers may not read all of the specifics, always include an executive summary of the important aspects of your plan at the beginning.
● Maintain a professional tone in the plan document.
● Make sure you have all of the required paperwork like the balance sheet, cash flow, loan application, credit history, and projected balance sheet before submitting.
● Finally, keep in mind that lenders often value originality and out-of-the-box thinking in business plans. However, do not let it overpower or divert from the main information.
Bottom Line:
If you’re seeking investment from a venture capitalist, a credit union, or a bank, you’ll need to show that you understand your company’s trajectory.
Your business plan should make it easy for all types of potential partners and investors to easily comprehend your business model and finances. Certainly, it’s even better if you can graphically convey data using charts and graphs.
You don’t need a lengthy document, but you will need something to show your lender that the problem your business addresses has a market. Importantly, it also contains your major financial statements and forecasts.
A business plan can be a mandatory part of a business loan application process. However, a well-crafted plan that you review on a regular basis can also help take your business on a profitable path.
