You’ll need to know how to draft a business plan for a loan if you need money to establish, grow, or buy a firm. Yes, business loan lenders will consider the same elements that all loan applicants must consider, such as credit history, credit score, and assets, but they will also need a business plan.
Why is knowing how to construct a bank loan business plan so important? Because banks want to know whether your company approach is viable and sustainable in the long run. They examine all areas, including financial documentation, sales methods, and your entire financial strategy, to determine its sustainability. Your financial forecasts are critical; a strong business plan will contain sales and profit forecasts for many years (if available). Sales and profitability will be anticipated over the following three to five years. Lenders want to know more about your company, including what items you sell, how competitive your industry is, and who your main individuals are. This information (along with others) is used to forecast the likelihood of your business’s success, allowing you to grow and repay your lender.
A loan business plan should be concise and easy to understand for loan officers, but it also helps you as the business owner. A well-written business plan is your company’s road map. For example, you may use previous financials and estimates as blueprints to see whether you’re on course for success.
Tip: Keep in mind that you’re developing a document that may be used as a forecast and guide for yourself and your firm when drafting a business plan for a loan.
What Does a Good Business Plan Contain?
The following aspects will be included in an efficient business plan for a loan application:
- Table of Contents and Cover Page
- Summary of the Report
- Description of the Business
- Market study and planning
- Management and Organization
- Product vs. Service
- Sales and marketing
- Analysis of Financing
- Financial Assistance Request
- Appendix
Many lenders may be interested in how your company would function in the event of a COVID-19 outbreak. Lenders are often concerned about two issues:
- How will the restrictions and repercussions of COVID-19 affect the company’s revenue?
- How a borrower plans to run their company in a safe and secure manner.
Your business strategy should contain a section labeled “COVID-19.” It doesn’t have to be long, but it should outline how you intend to keep your employees and customers safe and healthy while on the job. It should be placed after or before the Organization and Management section. The following information must be provided:
- Keeping the number of people who can stay as low as possible
- Cleaning materials and hand sanitizer will be delivered shortly.
- Putting on protective gear including masks, gloves, and other protective clothing
- Cleaning equipment — a fitness center, for example, would clean equipment every hour.
Provide information like these to answer revenue concerns:
- If your state has approved the reopening of your industry,
- If you can’t build a physical building, look for new or other methods to make money.
Find out what protocols your franchisor has in place for franchisees if you’re thinking about launching a franchise. Many franchises have obligatory safety measures that must be followed by franchisees.
1. The first two pages of the book are the table of contents and the cover page.
If you’re writing a business plan for a loan application, make sure it appears professional. Your company’s name and contact information should be on the cover page. If you have one, place it on the front cover.
A table of contents and page numbers in a business plan for a loan application will help lenders and you discover important sections quickly. If you’re distributing your plan online instead of in print, make sure the table of contents is clickable and directs readers to the appropriate areas.
2. Summary of the Report
Executive summaries are often included at the beginning of corporate papers to help busy individuals quickly absorb the most important points from a longer text. Your reader shouldn’t have to go through a lengthy text to get what they’re looking for.
On one page, describe the whole business strategy. Describe your business, its product, and why it was founded. Include a list of your major rivals, as well as reasons why your product will perform better than theirs. If it’s appropriate, bring up the current economic situation in relation to your clients and product.
Tip: There shouldn’t be a lot of financial information in the executive summary. If you have one, you may be able to generate a substantial or exceptional cash return.
Summary of the Report
For many years, Hank and Leah Smith have worked in the culinary sector. They initially started an ice cream store in York, Pennsylvania, in 1986, and a second in Lancaster, Pennsylvania, in 1988. Due to its distinctive mix-ins and tastes, its old-fashioned ice cream became famous. They’ve chosen to study marketing and selling these goods wholesale, outside of the restaurants, after years of success selling little quantities of ice cream from their own store.
For many years, Hank and Leah Smith have worked in the culinary sector. They initially started an ice cream store in York, Pennsylvania, in 1986, and a second in Lancaster, Pennsylvania, in 1988. Due to its distinctive mix-ins and tastes, its old-fashioned ice cream became famous. They’ve chosen to study marketing and selling these goods wholesale, outside of the restaurants, after years of success selling little quantities of ice cream from their own store.
Hank and Leah Smith seek to commercialize their reusable ice cream pint and gallon containers. They’ve enlisted the help of local artists to create appealing packaging and label designs that emphasize their goods’ “old-fashioned” and “home-made” qualities.
Smith’s Homemade Ice Cream Dreams will first be accessible in the Atlantic area, where the Smiths are well-known for their goods. Distribution will be simple due to their large product following and good contacts with local companies. Weis and Giant, two local supermarket stores, have already began contract discussions.
Smith’s Homemade Ice Cream will have a positive cash flow and profit in the first year, according to financial projections. In the first year, the estimated return on equity is 12.37 percent.
An executive summary is an example of a document.
3. Description of the Business
A goal statement, company philosophy, any strategic partners, and your corporate structure should all be included in the firm description. It will be brief and to the point.
Description of the Business
Objectives and Goals
To develop and market high-quality items that will delight and astonish consumers.
Members of the Executive Committee
Leah Smith is the company’s owner and president.
The company’s chief product officer, Hank Smith, is a co-owner.
Jason Smith is in charge of sales and marketing.
Jane Smith is an executive chef and a product inventor.
The Law’s Structure
Smith’s Homemade Ice Cream is a Delaware company situated in Rehobeth Beach.
4. Investigation of the market
You’ll want to provide a competitive study of your market after you’ve informed the lender what your firm does and who does it. To be clear, a market study is not the same as a well-thought-out marketing strategy. This will be taken care of at a later date. Market research focuses on the market’s characteristics rather than a comprehensive strategy for conquering it. Determine whatever gaps in your company’s operations need to be plugged. The following items should be included in a company’s market analysis component:
- A look at the industry and its prospects for the future
- Is there a distinction between sectors and niches?
- Your target market’s information
- The marketing approach for your firm and how it will help you stand out
The market study should also contain information on the impact of various sources on your company. Provide information demonstrating your awareness of the rule and prior compliance with it, for example, if the industry is regulated (if your business is already up and running). Are you going to require any raw materials? If that’s the case, how do you know you’ll be able to purchase them at a price that fits your budget? Is it risky to change pricing points?
What about your adversaries? How do they set themselves apart? What is their pricing strategy?
While information on your rivals should be included in your market study, the emphasis should be on your target clientele. What stores do they frequent at the moment? Why? What are their precise ages? What are their convictions? How much money do they make on a regular basis? You should supply information on each of your customers if you have a diverse client base. Demonstrating knowledge of your target client instills confidence in your potential to succeed in the eyes of investors.
Indicate whether your business does continuous market research or R&D for competitive new products and services in this area. Will you interview customers as part of your research? How do you be sure your research is accurate?
Market research should be carried out with the help of credible sources. It should be obvious to readers where the information originates from when discussing your rivals and their goods, for example.
Tip: Many company owners use third-party firms to do their research. Please remember to credit them if you use them. If you use data from a survey or a published study, be sure to provide credit to the original source.
5. Management and Organization
Information regarding your company’s management structure should be included in the organization and management section of your business plan. An organizational chart, a description of the structure, and salary forecasts are all common features in company plans.
A full description of the person in charge, their duties, and their credentials should be included in every management job. Include your Board of Directors, as well as any relevant experience to your company’s success, on a separate page.
The company description includes information on the firm’s executives, such as the owner and co-owners. It is not required to include a separate organization and management section if your firm is tiny and presently consists just of the proprietors.
6. Product vs. Service
Now is the moment to thoroughly examine your company’s product or service. What exactly are you attempting to market, and to whom are you selling it? What sets your company concept apart from others? What are the requirements of the consumers you serve? Many business plans include all of the company’s products as well as the intended or present price structure.
The service or product section should include any finished, ongoing, or planned research and development, as well as the expected lifetime of your product or service. Of course, the contents of this section will vary substantially based on the nature of your firm. Add a description of any trademarks, patents, or other intellectual property rights, if relevant.
Click here to see an example of a service and product area.
Now is the moment to thoroughly examine your company’s product or service. What exactly are you attempting to market, and to whom are you selling it? What sets your company concept apart from others? What are the requirements of the consumers you serve? Many business plans include all of the company’s products as well as the intended or present price structure.
The service or product section should include any finished, ongoing, or planned research and development, as well as the expected lifetime of your product or service. Of course, the contents of this section will vary substantially based on the nature of your firm. Add a description of any trademarks, patents, or other intellectual property rights, if relevant.
Click here to see an example of a service and product area.
7. Sales and marketing
Three crucial pieces of information may be found in the marketing and sales section:
- What are the methods that customers will use to learn more about your products?
- Which sales channels and approaches do you intend to use?
- What are your expansion plans?
If you want customers to learn about your goods or services via instructional strategies such as industry gatherings, be clear about your strategy. Be clear about your efforts if you wish to market or establish a public relations campaign. Are you planning on using social media? What are the ones you’re referring to, and why are you mentioning them? Are these commercials aimed at certain demographics or sorts of customers? What are the ones you’re referring to, and why are you mentioning them? Will sales be handled by a specialist sales team? Will management contact potential consumers or stores that could be of interest? Will you have a presence on the internet?
If you don’t already have one, make one. In this part, discuss any intentions for expansion into new geographic areas or new types of prospective clientele.
Go here to see an example of a marketing and sales department.
8. Assessment of Financial Situation
For lenders, the financial analysis portion is crucial. Financial estimates for the next three to five years must be included in the financial analysis. Indeed, the farther out projections are given, the more difficult it becomes to make reliable predictions. Prepare a three-year business plan, but have a five-year forecast on hand in case investors want it.
8.2 Examining the Break-Even Point
A break-even analysis is the examination and evaluation of a company’s margin of safety based on sales and related expenditures.
Here’s how you use Excel to do a break-even analysis.
8.3 Profit and Loss Estimates
This section explains how to predict how much money your firm will bring in and how much profit it will generate from those sales, often known as a P&L projection.
Tip: After you input sales and expenses, most accounting software, such as QuickBooks or Peachtree, can generate a P&L estimate for you.
8.4 Forecasting Cash Flows
A cash flow projection is a written estimate of how much money will flow into and out of your business over a certain period of time (usually 12 months). Your predicted income and costs are included in the forecast.
You may learn more about cash flow forecasting by visiting this page.
Tip: Using accounting software to examine your previous cash flow will assist you in determining and forecasting your future cash flow.
8.5 The Balance Sheet Forecast
A “pro forma” balance sheet is a balance sheet that has been anticipated. It shows the account balances for a company’s assets, equity, liabilities, and other costs and revenue that aren’t included in the P&L, such as cash from a loan or past-due customer bills.
Here’s where you can learn more about how to build a pro forma balance sheet.
Learn how to make a balance sheet for a business and download a template here.
8.6 Ratios are crucial in the business sector.
In a business plan, ratios are used to monitor and analyze a company’s success. Predicted ratios are another useful tool for banks to assess your company’s potential and serve as a planning benchmark in this situation.
Ratios are crucial in the business sector (and Their Formulas)
9. Financial Assistance Request
Now is the time to submit your grant request! You must explain why you seek business financing, the amount you require (both current and expected for the next five years), and the intended use of the money.
Tip: Describe how finance will help to your company’s overall success (and its strategic plan). Is it possible to do strategic research and development? Contribute finances to a lesser competitor’s acquisition? Is it feasible to set up a window for buying media and engaging in other marketing activities?
Here’s one way you can structure your funding request:
1.Your financial status right now.
2.Any additional financial needs during the following five years.
3.What you’re going to do with the money you’ve been given.
4.Any financial strategy that is intended to be used over a lengthy period of time.
10. Appendix
The following items should be included in the appendix:
- Curriculum Vitae for Principals
- Returns on tax money
- Relevant papers on real estate
- Documents that describe your organization’s legal foundation.
- Data-processing flowchart
- Principals’ Curriculum Vitae
- Tax revenue returns
- Papers about real estate that are relevant
- Documents that outline the legal underpinning of your company.
- Flowchart for data processing
- Personnel policy
- Profit and Loss Statement
- a financial report