Beyond the standard qualifiers, such as an explanation of assets, credit history, and credit score, lenders require business applicants to submit a formal business plan in order to receive approval for a loan. This plan not only needs to demonstrate what the business is and how it will function but must also provide evidence of your ability to repay the loaned amount.
Particularly for a startup, this can seem like a daunting request.
So, what do lenders expect to see in your business plan? And how can you best position yourself to qualify for a loan? Required formats may vary from lender to lender, so be sure to check with your bank to see what they’re specific preferences may be. But in general, your plan should include the following:
Cover page and table of contents – While it may not be the most essential part of your business plan, the cover page is your first chance to make a good impression. Featuring your brand logo, colors, and slogan on the cover page along with your company name and contact information not only provides a window into your brand, but it also demonstrates the forethought and professional standards you’ve established for your business. The table of contents allows your readers to quickly navigate the document, making it easier to find the information they’re most interested in.
Executive summary – This is the first section of your business plan, but it’s often easiest to write last. Once you’ve gathered all the information needed for your proposal, summarize the key points. Briefly and clearly explain the nature of your business, the market opportunity, any differentiators that will give your company an edge, your leadership background, financial projections, and your goals in securing the loan.
Company profile – This section should provide an overview of your business model, including your mission statement, cove values, products or services, and target customers. It should clearly state the problem your business will solve and how you will solve it. It should also highlight your leadership structure, including the experience, qualifications, and skills that qualify your leaders to drive success.
Market analysis – Include a detailed industry overview and analyses of market size, trends, and opportunities. How will you ensure profitability by providing a better product or service than those currently available to your target customer? This section should also provide a summary of your pricing, positioning, and marketing strategy. Do your research and be sure to cite your sources, particularly when it comes to industry trends.
Competitive analysis – Building on your understanding of the market, this section should take a deeper dive into the specifics of your existing competition (including name, size, reputation, etc.), as well as identify key differentiators that will set your business apart.
Operating plan – This is your opportunity to get down to the brass tacks of how you’ll get your company up and running — and how it will function from day to day. Key considerations include business locations, technology or other equipment, staffing, and standard operating procedures.
Risks – In this section, you’ll need to demonstrate an understanding of the potential obstacles to your business’s success, including changes in the market, competitive disruption, staffing, and regulations, to name a few. This is also your opportunity to explain how you will mitigate these risks over time.
Financial analysis – This is what the rest of your business proposal has been building to, and what prospective lenders will be most interested in. You’ll need to thoroughly detail your financial projections for the next three to five years — and, if you’re already in business, include historical results from the past three to five years as well. Lead with your anticipated revenue, including all products, services, and other opportunities for income. Then forecast your direct costs, personnel costs, and other expenses such as rent, utilities, and marketing. It’s common to combine this information into a P&L forecast table.
Loan request – Once you’ve provided an overview of your financial projections, state the size of the loan you require, how you arrived at this amount, and how this money will be used. You’ll need to state your desired terms and explain how you intend to repay the loan (on schedule) based on anticipated revenue. Detail any other sources of funding including savings, lines of credit, or personal loans in this section as well. Finally, be sure to include a description of collateral to be used as security in securing your loan.
Statements – Lastly, your business plan should include personal financial statements for any owner with a share of 20% or more in the business. These statements must be current (generated within the last 90 days). Businesses which have already been established must also provide complete financial records from the past three years, including balance statements, income statements, and net worth. Some lenders may also require tax statements from the past one to three years.
Other items which may be required include (but are not limited to):
- Equity investments
- Copies of business licenses and registrations
- Copies of current or proposed lease agreement(s)
- Franchise agreement (if applicable)
- Partnership agreements and/or contracts
Demonstrating to lenders that your business is a sound investment begins with sufficient planning and preparation. With more than 25 years of experience, Sage Business Consulting can simplify, accelerate, and improve the results of your loan application process. Learn more about our process and see how we can help you get started today.