Whether you’re a small business owner or want to start a business, you may need to take a loan from the bank. Preparation and planning are imperative to get a loan from the bank. One of the first documents the loan officer will demand from you is business planning to approve your loan in the bank. Therefore, it is vital to know how to write a business plan for a loan.
A feasible business plan clarifies the loan officers that you’ve organized your thoughts and idea. Now you’re going through the business thinking process. Here, we’ll tell you how to make a rock-solid business plan proposal for a loan.
WHAT IS THE BUSINESS PLAN AND WHAT IS IT FOR?
The Business Plan is a document presenting the project as a whole. It includes a presentation of the project (description of the project, of the team, market study and marketing/sales plan) and a financial part (financing plan, provisional income statement, and cash flow plan).
Each Business Plan is unique and specific to its project. The structure may be similar, but the content is explicit to the project leader, the activity concerned, and the financial part. It is a strategic document for launching a business. As such, it is required by most banks for the granting of a loan. It needs to be carefully prepared and properly presented to trigger the trust and support of the bank. So let’s look at the vital steps to make a business plan for loans.
UPDATE YOUR BUSINESS RECORD
If you’re the existing business owner, the investors will carefully investigate your current business records. It helps them to know how your business is doing. They’ll look at:
- Business credit reports, D & B reports, or other information.
- The last three years federal tax returns of your business. If you do not have a three-year return, illustrate as much as you have.
- Balance sheet and profit and loss report.
- List of Debt and its payment history.
- List of business assets.
PREPARE A BUSINESS PLAN
You need a business plan to get a loan from lenders and plan your ambition and goals. It is not necessary to write a comprehensive business plan based on 20+ pages. Your written document just has an answer to three key questions for getting a loan.
- How much loan did you want?
- How you’ll spend it on your business?
- How you’ll return it?
In maximum 4 pages, if you can answer these questions, then go for it.
CAPITAL, CREDIT, COLLATERAL
After answering the above information, don’t think you can get a loan. You have to prepare yourself for answering the question about three critical criteria.
Credit: Your personal and business credit (If you have been running your business for some time)
Collateral: Cash that you can use for a down payment, either from your personal funds or your business
Capitals: Business assets with which you can promise to secure a loan.
Collateral or capital is crucial to accomplish the lender requirement. If you don’t have these, find the co-signer that can provide this funding.
Make sure you have everything you might need for a loan application.
During your discussion with a bank, they may ask to complete a loan application if you get a positive response from them. It is a good sign for you and your business. Prepare yourself from any questions that may be asked by using Form 4: SBA Business Loan Application.
Include your personal information
Even if you’re the owner of an establishment and want to request commercial loans, it’s imperative to provide a personal guarantee. Thus, another essential step for a small business loan is to update and gather your personal financial records so that you can present them with your loan. You may need:
- A detailed credit report: that shows your FICO score.
- A personal financial statement: illustrates your personal liabilities and assets. Besides, it also represents the resulting net worth.
- A personal budget: that exposes how much capital for living expenses you will need to take from your business.
Finally, put it all together in your business loan proposal.
Put your business loan proposal in a folder or CD, so your investor can see everything at a glance. Also, add the executive summary at the end as it provides a concise overview of your whole business.
Identify sources of funding.
Search for banks and other investors, after gathering your personal and professional records and preparing a business plan. Compare your business loan proposal with Small Business Administration (SBA). It helps you to know whether you qualify for any of their loan guarantee programs or not.
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