How To Write A Business Plan For Loan Approval
There are many reasons you might need a small business loan. Your financials and credit report are important factors when lenders consider your application. An equally important aspect is the business plan you present.
- A business plan tells lenders who you are, why you exist, and what you plan to contribute to the industry.
- Your business plan indicates that you have a vision and a well-developed, realistic strategy for achieving it.
- The absence of a business plan can increase caution among potential lenders. It may give the message that you lack critical thinking and management skills.
There are a few major components that should be a part of any business plan for loan approval.
Cover Page, Table Of Contents, And Company Information
Your cover page should provide lending officers with all the pertinent information about your business and how to contact you. The page should include:
- Your company logo
- Business name
- Physical address
- Telephone number
- Email address
- Date of completion of your business plan
There should be a ‘Table Of Contents’ section that lists the sections of your business plan by page number so that lenders can easily advance to pertinent pages while reviewing your application.
Your executive summary is one of the most important components of your business plan. Think of it as a sales pitch. You need to grab the reader’s attention right away. The executive summary should be written in a way that will encourage loan officers to continue reading. It should be brief, spanning no more than two pages.
The executive summary should include:
- Your vision and mission
- An outline of your goals and objectives
- A very brief overview of your organizational structure
- An outline of your marketing strategy
- A short statement of your financial health
- An articulation of why you need the business loan
Here is your opportunity to get the loan officers excited about your business and eager to fund your loan application. Your mission statement should be concise and easy to remember. Everyone associated with your business should buy into the mission statement. Unlike goals, your mission statement is long-term and unlimited. For instance, your mission statement might be to produce clothing that sustains the environment and promotes a healthy lifestyle.
A Competitive Analysis Of Your Industry
This section of your business plan demonstrates to loan officers that you have carefully researched the industry, analyzed the strengths and weaknesses of your competitors, and have developed strategies to position yourself competitively. This section of your business plan should include:
- A list of current competitors
- Competitor market share and how they operate
- Whether competitors are growing or minimizing operations and why
- What makes you different from your competitors
- How you can exploit competitor weaknesses to advance your position
- Your strategies to deal with new competitors popping up
Your business and management structure explains the legal status of your business and how it is managed. Are you a corporation? Partnership? Sole proprietorship? Next, you want to describe your internal management team including the names of all owners and identify any other key employees and their responsibilities.
Some small businesses have external management structures too, such as an advisory board. If you do, be sure to include all the names and biographies of all advisory board members.
Product Or Service Information And Specifics
This section of your business plan needs to be more than just a list of what you produce or the services you provide. If you are writing your business plan for loan approval, you need to articulate how your products and/or services benefit consumers and your industry niche, why your product or service is needed, and how you maintain quality control. Include a description of the products or service, their prices, your marketing strategy, including the channels you intend to use (website, social media), how consumers can access your products or services, your delivery mechanism, and any plans you have for future rollouts.
Financial Projections And Forecasts
This section of your business plan needs to be concise, realistic, and accurate. Whereas your mission statement can be conceptual, your financials need to be factual. Mistakes or confusing information can easily cause your loan application to be rejected. Lenders want to see plans for expansion and revenue growth.
Financial projections are assumptions based on the most favorable scenario. Financial forecasts are assumptions based on specific patterns existing in the industry today that can be counted on to continue in the future. You should include three spreadsheets in this section: sales forecast, cash-flow forecast, and balance sheet forecast.
A successful business plan for loan approval should be easy to read and understand, organized, accurate, and succinctly demonstrate your ability to compete and maintain financial health. Be careful to avoid any spelling or grammatical errors. The style should be professional, not casual.
Your executive summary and financials are the two most important components of the business plan. Be sure to give these two sections the time needed to create the most compelling presentation possible.