Writing a business plan for a loan, also known as a loan proposal, involves anticipating and detailing a business’s potential financial needs well in advance of when the loan is needed. This plan, along with any necessary documentation from your lender, is used to apply for a small business loan and can factor heavily on getting approved for the loan.
Recommended: Try TRUiC’s free Business Plan Generator by signing up for a business center account.
What Is a Business Plan?
A business plan is a document made to prove that a business will be successful by giving an idea of what the market the business operating in looks like, the resources it needs to operate, and a timeline needed to make it a success.
Most business plans are created before a business is ever formed.
Here are some things a good business plan can do for an entrepreneur:
- Help them get funding and support for their business. Lenders and investors love successful propositions and ideas. A good business plan lays out the groundwork for a business.
- Educate them about the business landscape. When doing research for a business plan, a big part of the research is learning about the marketplace, competition, and how the entrepreneur can utilize their strengths to gain a foothold in the marketplace.
- Help them develop a daily method of operation while also planning the long-term future of the business.
- Keep them focused on the business. A lot goes into operating a business. A good plan helps a business owner stay on track because it provides a fully detailed plan of action while magnifying the details in the first section of the business plan.
Why Do You Need a Business Plan to Get a Business Loan?
Whether you are a startup business or you've been around the block a few years, at some point, you're probably going to need a small business loan.
To get a business loan, you will need a business plan. Unfortunately, not all businesses are perfectly planned out and put together. So, regardless if you've ever prepared a business plan or not, this article will help you draft a business plan with the specific intention of impressing lenders, so you can get a business loan.
Here are some reasons you need a business plan to get a small business loan:
- Shows lenders that you’re serious about your business.
- Tells lenders you know your market.
- Relays what your company does, how long it has been around, where it operates out of, and how to get in touch should a lender need to reach out.
- Gives an indication of your company size and management structure.
- Details marketing and sales strategies your company exercises to make money.
- Puts forward what products and services your company specializes in.
- Contains a funding and repayment plan.
- Provides detailed financial forecasts and projections.
- Houses important business documents and other necessary information needed to get a small business loan.
How to Write a Business Plan to Get Approved for a Loan
There are nine sections within a successful business plan. Each section is important. However, the most important section is the Executive Summary. The executive summary should always be written last because it sells the lender on why your company will be a profitable business to lend money too.
Here are the sections you need to have in your business plan and how to write each section:
The executive summary answers the primary question: Why would your company be a profitable business to lend money to?
Write this section last, and be sure to include a summary of each section within this section. This section should be a snapshot of your entire business operation. You’ll want to sell lenders on why lending your business money is not a risky proposition for them. You’ll also want to include financial information and goals for business growth in this section.
Every business needs to know its marketplace inside and out.
A market analysis details how the business competes, what the advertising spend and marketing strategy is, and what the potential to make money within the market is. Write your market analysis in such a way that you show lenders you’re serious about your business and know how to grab as much market share as possible.
As the name indicates, the company description is the section of your business plan that identifies you as a business.
It tells your business story, what you do and how long you’ve been doing it. It tells potential lenders your location, who’s in charge, and how they can reach you. Write this section in such a way that you appear completely transparent, like an open book.
Make lenders believe you’re in it for the long haul so they feel secure lending you the money you’re requesting.
Organization and Management
Every company has a hierarchy structure that begins with a Director or CEO, all the way down to general employees.
Your business plan’s organization and management section needs to explain to lenders who’s in charge and what their background is. For example, does the CEO have an MBA from Harvard? If so, this is something you want to add to this section. You also want to include information on what’s operations like and what’s the size of the organization.
Marketing and Sales Management
Every business needs to be able to get their product or service in front of customers.
If they’re unable to do this, they fail. It’s important to show lenders in this section how you propose to or are already selling your product. You also want to explain your marketing strategy. Your reach and target market will determine how you set up your marketing strategy.
Service or Product Line
In this section, you explained to lenders what products or services you sell.
When you write this section, explain how your products and services are differentiated from your competitors. Show lenders you are a force to be reckoned with inside the marketspace you are operating.
In this section, state how much money you need to borrow and for what purpose.
Explain how the money will be spent and how and when it will be repaid. Make sure to answer how you will pay off your small business loan should a buyout or acquisition happen. Talk about outstanding debt your company has and how you’re paying back this debt. These items influence a borrower's ability to pay their small business loans back.
Financial Forecasting and Projections
It is important to know where you expect your sales to be over a set period of time.
This is where financial forecasting and projections come into play. When you write this section, be as realistic as possible regarding your expectations and what you foresee happening in the future with your company’s sales and growth projections. This is also the time to list collateral.
Lenders want to see growth over stagnation.
The appendix is an optional section that we highly recommend you include in your business plan. Here you’ll want to include all necessary documentation needed for getting a small business loan.
You will want to make sure you include copies of your resume, profit and loss statement or income statement, balance sheets, and cash flow statements. These three documents are the most important business documents that lenders will expect you to have. You will also want to make sure you include any requirements mentioned on your loan application.
This way, you save time so you can get your loan faster. It also shows lenders you're responsible and ultra-organized.