Business Plans for Loans - Explained
How to Write a Business Plan for a Business Loan
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Using a Business Plan
The business plan describes the current activities, aims and objectives, and how they are going to be achieved over a set period of time. The primary sections of the business plan are:
- Management and Operations
The basic premise is to show:
- Who you are.
- What do you make or what service you provide (what is the value proposition?)
- How you make it.
- How you sell it.
- The value exchanges that take place. (What money goes where.)
Next Article: Business Plan for Equity
Crafting a Business Plan to Obtain a Loan
To craft an effective business plan, you have to focus on the audience. Appealing to a commercial lender is far different from appeal to an equity investor. A lender is going to be concerned with the ability to service loan payments, risk of default, and securing the loan with business collateral (taking a security interest in business assets).
- Break down the loan request into its essential elements
- Show how much is required for inventory, supplies, signage, prepaid expenses, working capital, etc.
- Demonstrate the availability of capital and other security for the loan.
- Cash Flow
- Your financials should demonstrate that you will have enough cash flow to repay the loan amount.
- Amount of Loan
- You will need to lay out in detail the requested loan amount and the use of the capital.
- As previously discussed, lenders prefer for loans to be used to purchase collateral, such as equipment or real estate.
- Think strategically, as some loan amounts are difficult to obtain:
- Because of internal bank structuring, loans in the range of $20-50K are the most difficult to get.
- The consumer division generally services personal credit or consumer loans up to $20K.
- The commercial division is most focused on loans of $100K or more, so you have to work harder to peak their interest in a smaller loan or line of credit.
- Try to break down your debt needs into smaller phases until you can secure the money from personal credit sources.