Part 4- What Lenders Look For In A Business Plan

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.

So what are some of the key headlines that lenders look for in a business plan?

Showcase your expertise

Lenders want to see how adept your management team is at leading and growing your specific business.  They want to know who is steering the ship and who’ll be doing what in your business to make it a successful and profitable business. So they shall want to understand who everyone is and what are their relevant skills, knowledge, qualifications and track records.

Be Clear About What You are Selling

Your plan needs to show the lender that you’re clear about what you’re selling, who’s going to buy it and why and how you’re going to reach those buyers. Explain what you’re selling in plain English. This may seem obvious, but a lot of plans leave lenders guessing what the product or service being sold is, or why anyone would buy it.

What is your Market?

Lenders want to know who your customers are, how large the customer population is, how much they’ll spend and how viable the market is and why they will buy from you. Lenders want to know who you are competing with in this pace and how you are setting yourself apart – why is your business better or distinct from your competitors.  They want confidence that you know your industry backwards

How much do you need?

This may seem obvious, but know how much you need, versus how much you want; there is a difference. And, for what purpose? You need to clearly itemize why you need business financing, what amounts you’re requesting (both current and prospective for the next five years), and what you will use the amounts for.

The amount you ask to borrow should match the financials in your plan. For example, don’t try to show that you don’t need any money; if you didn’t, you wouldn’t be borrowing. But don’t show that you need much more money than you can afford to borrow. Your cash flow should be realistic, and it should show how much money you need and why you need it.

Current Financials, projections and cash flow

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.. Lenders want to make sure that you are financially stable so that you can make your loan payments.

Lenders expect to see the three main financial statements — income, balance, and cash flow — projected monthly for the first year, and annually for a couple of years after that. Cash flow is the most important part of your plan. Most loan applications are declined because the cash flow projections don’t convince the lender that the business will make enough to repay the loan. Lenders need to see that your assumptions are supported by concrete evidence from the industry, your own past sales, or even your competition’s sales, if you can get those.

Your financial projections need to be realistic.  Lenders will compare your projections to industry reports. If you project margins way better than industry averages, you will need to explain why and how you are going to accomplish that.  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.

Of course, in deciding whether or not to lend lenders look at more than just your business plan.  But the business plan is the platform from which you can demonstrate your skills, expertise and industry knowledge and your drive, control and vision for your business.  A good business plan is persuasive and answers queries rather than raises more questions, deriving confidence in you from those that read it.

Should you have any questions on any of the articles in this series please contact:

Craig Darling by email: cdarling@gilsongray.co.uk or by phone: 0141 530 2044/07841 920 467

The information and opinions contained in this blog are for information only. They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice. Before acting on any of the information contained in this blog, please seek specific advice from Gilson Gray.