A business plan is the foundation of your business. It shows the vision and mission and serves as a road map as you move forward with your business. A business plan is one of the most important documents you will ever create. It is an invaluable tool when it comes time to apply for a business loan. What lenders look for in a business plan might surprise you but knowing what they want will improve your chances of getting the money you need to continue to drive your business forward.
When lenders ask for a business plan, they are looking for the following information:
History of your business
Be sure to mention how your business started and how it has grown. Not any unique challenges you faced and how you addressed them, it will show your business acumen and ability to adjust changing market needs.
How revenues are generated
Lenders want to get their money, so they are interest in knowing how you make yours. Explain how customers are served, how the product or service is delivered and how much money is collected.
Let lenders know who is at the helm and what relevant skills, knowledge, and experience they bring to the table. I emphasize the word “relevant” here because lenders want to see how adept your management team is at leading and growing your specific business.
Lenders want to know who to serve, how large the population is, and how viable the market is. Lenders want to know who you are competing with in this pace and how you are setting yourself apart. All marketing and publicity you are doing should be noted so you can show that activity toward your business revenue creation and growth.
Historical financials with debt coverage ratios
To give lenders a clear idea of the financial health of your business, you need to show detailed financials of the revenue, assets, liabilities, and repayment structures. This is one area where many business loans are killed either because of poor or inaccurate accounting by the business or due to insufficient cash flow and debt service coverage ratios. Lenders want to make sure that you are financially stable so that you can make your loan payments.
Lenders want to see your future projections about what you expect to happen financially in your business. Discuss both what will occur without funding as well as what projected growth you expect should you receive financing. Be sure to include projections regarding job creation, market growth, and product development. Consider seasonal or cyclical changes to your business if any and how those changes can impact your business.
Include any assets that your company currently owns including patents, real property, or other collateral that can be leveraged against your debt. Additional collateral can include personal property like rental properties.
Purpose of the project
The last thing you need to mention is why you are asking for this loan. What does your business serve? Do you need to expand or open a new location? Do you need to install new equipment? No matter what your business goal is, be as detailed as possible. If you are looking to get an SBA loan or other economic incentive that is tied to specific policy directives. Lenders want to know exactly where their money is going.
The Bottom Line
Lenders look for other things other than the business plan including secondary repayment sources, residency, criminal records and more. Be sure to be responsive to all requests from lenders and give them as much information as possible so that you can prove that you are a good fit for them. You need to do everything you can to improve your chances. Do not let your business plan be the thing that keeps you down.