Your business plan could be the one thing standing between you and the right lender for funding. This plan is a critical document that will catch the attention of lenders. Therefore, it must be written carefully with the utmost attention to detail. Note that some investors are not conversant with your industry, so details are important.
Many business owners don’t write their business plans with the attention it deserves. No wonder lenders reject their loan applications. Crafting a well-written and detailed business plan is no simple task, but it greatly increases your chances of obtaining financing. Your plan must convince lenders that you are serious. Let’s look at the critical aspects you should include to make you stand out.
1. Business Operation
Lenders are interested in how your business works. What is your strategy? This gives them an idea of who you are and what makes you different from competitors.
This should be a brief overview. Put down your mission statement. In one sentence explain the reason your business exists and whom it will serve (target market). What problems will it address? Make use of research and provide evidence of a critical need for your services in the market. Indicate how your service or product will satisfy that need. Also, talk about your experience in the industry.
Detail your product or service in detail. Describe its distinctive features focusing on your unique selling proposition –which is what sets you apart from the competition. You can also disclose your suppliers and the cost of manufacturing the products. If you have details related to copyrights and patents, include this information too.
Specify your main competitors, analyzing their strengths and weaknesses. How will you use this information to get a step ahead of the competition? Realistically indicate your own business strengths and weaknesses.
Illustrate the total market share including the share your business will focus on. You should include numerical data to illustrate market viability and growth capacity. Also, include how your business will fit in the market. Who are your potential consumers? What are their income levels and other demographics?
Investment and Accomplishments
Describe the origin of your business and state how much money you have individually invested so far. What about other investors? How much have they put in? What are your current achievements with that investment?
Sales and Marketing Plan
What is your strategy for attracting customers? What features of your products or services will you highlight to entice customers? Include the budget you will require to put the strategies in place.
What is your sales strategy? What distribution channels do you intend to use and how will you use them? Be precise with this section. Do you intend to hire sales reps? How many do you need? What process will you use to hire them? What will their sales targets be?
2. Business Stakeholders
Lenders are interested in knowing that you have a competent and ambitious team that will put the strategy to work.
Board of Directors and Management Team
Lenders like solid management teams. Introduce and identify each member of your board and management. What skills and talents do they have? Emphasize them and how they are beneficial for the business. Do they have relevant previous experience? A former manager in an engineering firm may not effectively run a restaurant.
Owners’ Financial Stand
If any of the investors own more than 20% of the company, lenders will require you to provide them with their financials. In this case you will have to create a capitalization table. It is basically a spreadsheet that indicates a company’s equity capitalization.
Lending institutions tend to limit risk by assessing your finances. They are keen to know your business expectation in the near future and what role their investment will play.
Assets and Liabilities
Expect lending institutions to assess your personal and business financials to find out what assets you have. They are also interested in your net worth. Are you a homeowner? What reserves do you have? Do you have collateral? Indicate this in your plan. If you’re going for a bank loan, you must have some form of collateral which they will take in case you can’t pay. Other lenders may not require this.
Pricing and Projections
What are your product or service prices? What is the reasoning behind your pricing? How will this pricing boost your market share and ensure profitability? Outline your financial projections for the next 3 to 5 years. What are your revenue goals over the next couple of years? What have your profits been in previous years? What are your future profits projections?
Personal and Company Revenue and Net Income
Lenders can tell your ability to repay installment loan required for long term the by looking at your business revenue and net income. In case the business tanks, will you be able to pay the debts individually? Your personal income information will verify that. Is your business and personal revenue enough to cover current and future loans?
Use of Funding
Indicate how much money you need. One of the questions you will have to answer is what you will use the money for. Your answer should convince them that your revenue will increase and they will get their money back. Some great answers to this question are business expansion and working capital. If you know that along the way you’ll require an additional amount, include it as well.
4. Legitimacy of Your Business
Is your business real and registered? Has it been in existence for a while? How can lenders know that your business is legit?
Unfortunately, scams and fraud are a common issue when it comes to business loans. Make sure you have registered your business and have proof of the same. A bank or other lending institution will verify your business registration from the Secretary of State’s office.
Corporate Structure and Years in Business
Is your company a sole proprietorship or a partnership? If it’s a limited liability, is it limited by shares or guarantee? Have you been in business for a couple of years? Many banks favor businesses that have existed for two years and more.
Contact and Location
The company should have an independent phone number. It should not be the same as your home number. A well-designed website is a powerful sign of a legal business that takes marketing seriously. It will be unfortunate if lenders attempt to visit your business and you don’t have premises.
Your type of business determines where it’s located. If you have an upscale restaurant, it’s an absolute no-no to put it in a down-market part of town. Your plan must indicate where your company is located and the rationale behind its location. How will this location profit the company?
What if You Don’t Know How to Craft a Business Plan?
If you’re a small business owner who lacks the necessary skills to create a business plan, don’t panic. You have options supported by the SBA. They offer free and low-cost professional help to small businesses. These are:
- Service Core of Retired Executives (SCORE) – For over 50 years SCORE has supported entrepreneurs in starting and growing their businesses. This large group of volunteer business mentors pass on their expert knowledge. Get in touch with a mentor in your area for support with your business plan.
- Small Business Development Centers – They have several resourceful databases to assist you during the planning phase.You can also make use of business planning software like LivePlan. It gives you guidance and examples and has helped thousands of businesses to get bankers and investors on board.
It doesn’t matter whether your business is big or small, don’t underestimate the importance of a business plan. Not only is it important for acquiring funds, but it also acts as a compass for business owners. It keeps you on track with your vision and guides you to achieve business goals.
Don’t be tempted to present a haphazard plan because of the time and work that goes into creating an awesome one. A successful business depends on a well-documented business plan. Would you rather keep getting rejections or put in the work and get approved? Using the above points, you can create a compelling business plan that lenders will have no choice but to say ‘yes’.