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:

• Concept
• Marketing
• Management and Operations
• Financials

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.)

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.