Updated: May 22, 2020
We all know the saying: ‘Failure to plan is planning to fail.’ But hands up who’s actually written a business plan for their business? If you didn’t put your hand up, don’t worry, you’re not alone. In fact, according to research only around 33% of small businesses complete a business plan for their business.
The first time that many business owners even consider writing a business plan is when they’re told they need a business plan for a bank loan application. At this time, many businesses don’t know where to start, don’t know what the banks are looking for, or are so busy managing their business that they simply don’t have time to sit down and write a business plan.
So, to help you get started, we’ve put together our top 3 tips for writing a business plan for small business loan applications:
1. Know your audience.
2. Provide proof.
3. Keep it simple.
1. Know your audience – Write a business plan for the bank, not for you.
There is an avalanche of information out there on how to write a business plan. But the main problem is that they are written as a one-size-fits-all approach for any situation. The most important place to start when writing a business plan is to consider your audience.
This is especially the case when your audience is a bank. Why? Because banks are a process-driven bunch and they are looking for specific things before deciding whether to give you the big stamp of approval.
So, what are the banks looking for? Banks are in the business of lending you money in return for interest. They lose if you don’t pay them back. There are four key things a bank looks for in a business loan application, all of which are aimed at detecting any risk of you not paying them back.
4 key things banks assess in a small business loan application.
2. Provide Proof - Proof, the whole proof and nothing but the proof.
So, we’ve talked about risk in the previous section, but just how important is it in a bank's decision? Research suggests that the primary focus of a bank’s loan decision is how much risk it represents for the bank. So, how can you set their mind at ease that you're not a risky investment? Proof.
For an existing business, this means providing financial statements to prove the history of success that the business has been able to achieve.
For a new business, the biggest hurdle is the lack of a track record. So how can you provide proof when there is no financial history? The answer is with a business plan. In order to cover the bank’s need for proof, your business plan should include three key things:
1. A cash flow forecast.
2. A plan for how you will achieve the cash flow forecast.
3. Evidence that your plan and your forecast are based on solid footing. This can take the form of research, links to sources, reference to specific customer feedback, showing management sales records, or proof of physical documents or formal contracts. Aim to back up any key assertions that you make with some form of proof.
3. Keep It Simple and Structured – There is beauty in simplicity.
Providing proof doesn’t mean that you need to write a thesis. The banks have hundreds of applications to review every week. They don’t have time to pore over a lengthy 100-page document. Keep it concise and follow a clear structure.
Our recommended structure focuses on the 6 most important areas that a bank considers in a plan:
6 key sections of a business plan for a small business loan application
Aside from seeking finance, there are many other benefits of a business plan, including increasing your chance of success, helping you set a laser-focused direction and/or gaining clarity on what makes your business hum. Just make sure you consider who the audience is before you start your plan.
If you need any assistance in writing a professional business plan, we’re here to help. Head to our website for more details.