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Business Plans for Loans

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.

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