8 Things Lenders Definitely Want to See in Your Business Plan
Whether you’re a start-up or established business, a business plan is one of the most important documents you’ll ever need. In case you’re unaware, your chances of obtaining small business loans rest heavily upon it. In other words, your request and approval for a loan depend on how you present your business to potential lenders.
The key to getting the funds you need to drive your business forward is to figure out what the lenders want to see in a business plan, and then provide it for them.
Related: 8 Things You Need to Do Before Applying for Small Business Loans
To help reputable lenders gain a better understanding of your business, be sure to include the following key points:
1. The History of Your Business
Indicate where your business started and how it has grown. Be sure to cite the unique challenges you were confronted with and how they were addressed. This will give lenders a clear perspective on your business acumen. Most importantly, this will show lenders how you adjust to the changing highs and lows of today’s market.
2. How Your Business Generates Revenues
Lenders would want to make sure they’ll be repaid the money they lend. You’ll need to explain how you serve your customers, how you deliver your product/service, and how you collect payment.
3. The Management Team
Your prospective lenders will want to know if your management team possesses the relevant skills. Knowledge and experience will play a crucial role as it will be useful in growing your business. Be sure to present the people at the helm in a positive light and expand upon what they bring to the table.
4. The Market
Lenders pay close attention to how your business generates continual revenue creation and growth. Your business plan provides them with pertinent information about the customers you serve, the size of the market, the viability such as affluence, and the potential for growth. They will also look at your competitors and want to know how you set yourself apart. Aside from that, they’ll want to know how you’ll market your business to your audience. They want to be able to make sure that your business will be profitable so you can repay the loan.
5. Historical Financials that Include Debt Coverage Ratios
Lenders want to see a detailed financial report that clearly shows all of your business’ revenue, assets, and liabilities. However, you’ll need to present repayment structures so they can have a clear idea about your business’ financial health. You’ll also need to make sure you don’t have insufficient cash flow as well as debt service coverage ratios. Not having enough cash on hand to make loan payments is a sure-fire way of being denied small business loans.
You must give lenders a snapshot of what you expect to happen to your business financially, on a moving forward basis. It’s best to highlight the contrast between what will occur without funding and what projected growth is expected should you receive financing. Don’t forget to mention your projections involving job creation, product development, and market growth. They’ll also want to see any seasonal or cyclical changes to your business and how these changes will impact (if at all) your business financially.
Be sure to cite the assets that your company owns including any real property that you can use as collateral. In case you’re not aware, it’s also possible to include personal property as additional collateral for underwriting consideration. With an asset to guarantee the loan, you can enjoy more flexible terms and lower interest rates.
Related: Why Do Lenders Need Personal Guarantees for SBA Loans?
8. The Purpose of Your Project
Lastly, remember that reputable lenders will always want to know where their money is going. Furthermore, they need to understand the reason why you’re asking for small business loans and the need it serves. Whether you plan on installing new equipment or opening another location, you’ll need to be as detailed as possible. A comprehensive presentation of these details is highly critical if you’re looking to get small business loans.
It’s also possible that lenders will ask for items that go beyond your business plan. These may include criminal records, residence, or secondary repayment sources. To keep the process moving, you’ll need to be responsive to their requests even if some of them seem unnecessary.
If you’re prepared to give them the information they’re asking for, you’ll give them a positive impression. This will show that you and your business are stable, professional, and creditworthy. You have to do all that you can to improve your chances of being approved of a small business loan. Be sure that your business plan is the center-point that works on your behalf.
Small Business Loans: The Financial Source You Need
Many may not realize it, but your business plan isn’t just there to guide you on how you can run your business. When you need extra funding, your business plan will help you sell your business to banks or other lenders. That’s why it’s extremely important to craft a good one to increase your chances of small business loans. Consider these items when creating your business plan. Be sure to know what the lenders want so you can increase your chances of loan approval and drive your business forward.