Writing a business plan to get a loan can be quite a challenging task. While on the one hand, you are excited about the prospect of accessing additional funds to further your business, you are often apprehensive on the other hand as well. This is mainly because you are not sure about how to fashion the content of your business plan to ensure your loan application gets accepted by the bank.
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How to Start Writing a Business Plan which Is Suitable to Get a Loan
Before you start writing your business plan, you must understand what goes into ensuring that you get a loan. You also need to learn the tips of how of fashioning your loan application in a way that makes it a compelling cause. That is very important for the business startup.
1. Sort Out the Financial Situation
Even before you start writing a business plan to get a loan, you must be careful to get all the financial matters sorted out and gather relevant information.
1) Ensure that you have the financial statement in place with complete record of profit and loss incurred by the company.
2) Ensure that you have the balance sheets ready and have 3-month bank statements ready.
3) In case you are just starting your business, you must keep your personal bank statement of the past 6 months available
4) Your plan must have a list of all the equipment required and cover all starting costs
5) Remember to include relevant legal costs in your plan. This could include the likes of registration cost, paperwork for land buy and the like
6) Additionally, don’t forget to include details of the income tax statement for 3 years as well. If you are starting a business, it is a good idea to include your personal income tax statement.
Remember a banker’s primary concern is to get the money back and to get some returns on the money they invest. So remember the business plan that you are presenting to the bank must focus on the potential return that the bank can aspire to get from the investment that they are making into your business.
2. Create a Complete Business Resume
Writing a business plan to get a loan needs to be as detailed and informative as a full-fledged business plan. It is almost like writing a resume for your business. You must ensure that all important details are covered in the business plan. However, you must remember that a business plan is never same as your loan application and you must be careful to pay attention to that.
Don’t expect to woo a banker by just creating a rosy picture about your business’ growth prospects. What instead could interest the banker is a record of the backup plan that you might have, the contingency provision which your business has to tide with an emergency situation. This is relevant to the banker as this fact alone shows the payback potential of the loan that they are committing to.
This is what shows the possibility of the kind of return the bank can expect even in worst case scenario. This is a very important concern for the bank when they are providing a loan. You must understand that unlike an investor, the bank is not that keen on the growth potential of the business. All they want to analyze and understand is the rate of return on the investment.
3. Cashflow Account
This is exactly why while writing a business plan, you must carefully account for the company’s cash flow statistics. This is by far one of the most convincing documents from a banker’s perspective. In one go, it gives the banker a fair idea of the company’s ability to generate cash and at the same time to maintain its sustainability over the longer term.
A properly document cash flow account also gives the banker an idea of your overall ability to repay the loan when the need arrives. Mere projection of the future cash flow will hardly suffice. A 3-years account of the cash flow along with the complete details of the potential income and balance statement will bring forth the overall picture for the banker. Even if you do not have the future projection but if you have a 3-year account statement and cash flow details, the banker will be able to make a fair assumption about the company’s overall sustainability prospects.
4. Decide on the Mode of Application
Earlier perhaps approaching your local bank was the only option while writing a business plan to get a loan but realities have changed now. You can even approach a bank for a loan online now. While the online application format allows faster formatting time and access to multiple lenders in one go, the local bank gives a more face to face experience and helps you to make a better case for your loan application. But that also means that you must be able to tweak your business plan accordingly. This will help you to connect better with the target lenders in a lot more effective manner and make a better impact.
5. How Can You Ensure 100% Approval?
Well, we all know that bank loans are very difficult to get approved and as an entrepreneur in need of funds, often it could be an uphill task getting it approved. But the point is if there is a sure formula to ensure that your loan gets approved? Many will tell you that your business plan can do the trick. The question is what other elements in your plan can ensure this. Well remember to include the following in your bank account
- Strong revenue picture
- Robust profitability
- Credit score exceeding a 700 score
- Reliability and return prospect
Even if it means that you must go the extra mile, it is worth the effort because you must remember that the bank loan will be the lowest cost alternative for you. The advantage is also that this will ensure minimum interference from the lender. Overall bank provisions indicate that inclusion of all these details generally ensure easy approval of a loan that you require.
6. Collateral Options
Another important aspect that you must understand and pay attention to while writing a business plan to get a loan is the collaterals that you can provide to the bank in exchange for the money that you want to take as loan. The collateral could be anything from the inventory in your manufacturing unit to your personal assets. In the overall picture, this has to be something that can convince the bank to get back the worth of money they are investing in case you are not able to repay. Therefore mentioning the collateral becomes an indispensable part of your business plan.
You Are Done
Writing a business plan to get a loan from a bank as opposed to an investor serves radically different purpose and motive. As a borrower, it makes sense for you to borrow from a bank because of the
- Low cost involved
- The ease of getting loan
- Minimum interference from banker
- Maximum optimization of resources.
The fact that the bankers provide debt financing and you can pay off in easy installment is another major positive for you. From the bank’s perspective, the prospect of loan is all about expanding their business and multiplying the money they are investing. Therefore the single most important element that they consider while approving your loan is the return they can expect from you.
Therefore, when you are writing a business plan to get a loan, your sole purpose needs to highlight the reliability and dependability of doing business with you. You must come across as a name that the bankers can rely on and can expect high returns on the amount they invest in. Your business plan must avoid rhetoric and be high on direct, genuine and honest showcasing of strong growth prospect. This is what will convince the banker in the longer run about the scope of return that they can realize by investing in your plan.