If you intend to take out a small business loan from a bank, one of the primary requirements is a business plan. Preparing this 12 to 15-page plan could very well be the most tedious part of the entire small business loan process, including repayment. In this guide, we’ll break down everything your bank will likely be looking for in a business plan, such as the different sections as well as each section’s preferred content.
Keep in mind that certain sections can be more than one page long. But as for the total amount of pages in the entire business plan, shorter is usually better than longer.
Let’s start from the very beginning:
Your cover page should consist of your business’s name, logo and contact information. A table of contents denotes organization, which is a key attribute of any successful business owner.
The first real page of your business plan should include a brief but enticing mission statement. In addition to outlining what your business does, the mission statement should give the impression that your business is on a path to tremendous success. This is the first page your bank will see, so it needs to create interest. After all, you are sort of trying to sell your business to them. If you’re not sure how to do that, you might want to wait until you’ve finished the rest of the business plan to draft your mission statement.
After the mission statement should be a description of your products or services, followed by a layout of your business’s ownership structure. Lastly, develop a brief summary of what you plan to do in the future if you are approved for funding. Remember not to get too in-depth with any part of your executive summary. You will be providing much more detail later on.
This ambiguously labeled section begins with vital information such as your business’s registered name, the addresses of all physical locations, and the names of the most important people in the business. You can finish off with your company’s history/origin and how it relates to your business model and/or products or services.
Unlike the previous section, this section asks you to do exactly what its name denotes. You will describe your industry, how your business will attract and satisfy your target demographic, and how your business will compete with virtually any other operation that sells the same products or services. A decent amount of space should be devoted to your biggest or most similar competitors. You can explain who these competitors are, what they do well, and what you will do even better than them.
Up until now, you’re probably wondering when you’ll actually get to talk about the funding you are looking for. That point is right here, where you’ll specifically outline your business’s short-term and long-term goals as well as how you plan on achieving each one.
This is also the section where you explain why a small business loan (as opposed to other methods of financing) is the most sensible way to finance your investment and how the money will help you achieve the aforementioned goals. Most business lenders favor applicants who utilize hard data to back up their claims. You should therefore use all the data you can to establish a direct link between this specific business funding program (amount, terms, etc.) and your projections (i.e. “50% increase in sales over the next two years”).
This is essentially a breakdown of every major employee’s responsibilities, specifically in regards to managers and/or supervisors. Then, provide a breakdown of your business’s legal structure (sole proprietorship, corporation, etc.), the percent of ownership that each owner possesses, and each owner’s role in the business. You will also describe the relevant experience of each owner, your board of directors, and the aforementioned employees.
It’s time for you to go into detail about the products or services you currently sell as well as those you plan on selling. You should explain what your products or services do, how much they usually cost, and the kind of people who usually purchase them. In the ideal event that you receive an increase in orders, you should explain how you plan on filling them.
Earlier, you touched on why your products or services are better than those of your competitors. In this section, you should do the same but with much more detail. In addition to, say, overall quality, you could discuss why you do a better job of fulfilling the needs of your target demographic or catering to a wider demographic with more purchasing power. This section should also describe any current or pending copyrights, trademarks or patents related to your products or services.
The central purpose of this section is to lay out your strategies for accomplishing two things: persuading your target demographic to purchase your products or services and developing loyalty within these customers so they will make more purchases in the future. Marketing and sales plans are often what sets a business apart from its competitors. You should therefore use this section to emphasize the most unique elements of your business model and explain why these elements give you competitive edge.
Since a great deal of this section revolves around your competition, it would be wise to scrupulously research the marketing and sales plans of your biggest competitors before drafting. Anything that differentiates your strategies from your competitors’ should be highlighted, even something as seemingly small as ad copy.
This section goes hand-in-hand with the next. You will outline your current and projected financial needs for the next three to five years, or the duration of your desired small business loan. This should include the budget you intend to maintain once you have received funding. Since you are most likely applying for a bank loan of considerable size, it’s probably best to go five years into the future in regards to financial needs, even if your desired small business loan will only last three years.
As you can imagine, this is perhaps the most important part of your business plan. It should start with previous and current income statements, balance sheets, and cash flow statements. The requirements for your desired business loan should show you how far back the bank wants you to go.
Then, you will explain how your business will generate enough profits to simultaneously pay off the debt and grow your business. Like the previous section, your projections should span at least three years and the future numbers should assume that you have obtained your desired loan. Projections will include monthly or quarterly sales, expenses, profits, and overall cash flow.
Your goals should be a careful mix of accuracy and optimism. The latter is perfectly justifiable if you can back it up with data and acknowledge the risks of taking on so much debt. Your business lender will want to see that you’ve thought about these risks and developed realistic solutions.
The appendix is meant for any information or documents that you couldn’t fit in the other sections. Examples include resumes of major employees, equipment leases, permits, contracts, letters of recommendation, and your personal and business credit history. Yes, that’s a pretty long list. This is why many loan applicants begin their appendixes with a table of contents.
And that’s it! You’re done.
Odds are, the loan officer from your bank has previously worked with numerous borrowers from your industry. He or she will therefore likely be able to tell if your projections or current estimates are inaccurate. For example, if your business plan features sales projections that are significantly higher than your most similar competitors, the loan officer will know you are not being realistic. The goal is to evoke the right mix of optimism and realism, based on what your research on your industry has told you.
When it comes to projections, your loan officer will likely appreciate data-supported explanation. Your projections should always be backed up by statistics, and possibly even graphs or charts. But this doesn’t mean you have to be especially technical in the other sections. Using too much industry jargon and attaching technical aspects to every element of your business will only confuse the loan officer and steer him or her away from the business plan’s main points.
Your Executive Summary is arguably the most important page of your business plan. Think of it as an extended version of your “elevator pitch,” which is supposed to make you stand out. So, when writing your Executive Summary, you might want to ask yourself, “Why should the bank finance my business instead of my competitors?”
With so much content on your plate, you can almost guarantee that your first draft of your business plan will be laden with typos and other errors. You might have to re-read the whole thing several times before you’ve corrected every single spelling, punctuation and grammatical mistake. After all, a strong business plan shows attention to detail. How detail-oriented can you be if you forget to proofread?
And while it’s entirely up to you to compile the information for your business plan, it’s completely acceptable to hire professional help for writing and editing. Plenty of applicants have hired professional copy editors, proofreaders, and even business plan writers to ensure their business plans effectively communicated their main points.
The post How To Create A Business Plan For A Small Business Loan appeared first on United Capital Source.