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How to write a Business Plan for a Loan

You’ve got big ideas for your business. When you’re seeking funding to make them happen, how you communicate your vision and plan to a lender could make a big difference. That’s why it’s important to understand how to structure it and what lenders will be looking for. If you aren’t sure about either, this article should help.

How to structure your business plan for a loan

The first step in creating a business plan that clearly defines your goals and objectives is to structure it correctly. Most business plans fall into one of two categories, traditional business plans and lean startup plans. When you’re seeking a loan, it’s best to go with the traditional business plan since it’s more detailed and provides a lender with all the information they need. Below are the sections and short description of what you will need to include. If you’d like to read more about what to include in each of these sections, check out our article - What Goes Into a Business Plan:

Executive Summary - A clear and concise summary of your business and the information within the rest of the plan.

Business Description - A high-level overview of your business. Includes who you are, how you operate, what you offer, where you’re headed, and who your target market is.

Product/Service Description - Detailed description of what you offer.

Market Analysis - Stats and projections about your industry, including a competitive analysis.

Marketing Plan - Your strategy for how to grow your business.

Financial Plan - Create a clear financial picture for your business.

Attachments/Appendix - Important paperwork alluded to in the rest of the plan.

What lenders look for in a business plan

While the structure lays the groundwork for how to organize your plan, there are certain things that lenders will be looking for. Here are 4 P’s you should focus on when writing it.

  1. Potential
    One of the key factors in deciding on approval is the team that will be running the business. A lender will want to know about your education, as well as the skills and experience you have for running the business. This will also include your credit score and credit history.
    Make sure to create a clear picture of your potential while writing the Executive Summary and Business Description.
  2. Projections
    This information may be the most critical to a lender and should include a pro forma, which is a projection of revenues based on all products that the business is offering as well as expenses. The key here is creating a clear picture of what you are expecting as a business and why.
    The financial projections for your business will be included in your Market Analysis and Financial Plan.
  3. Purpose
    Another thing lenders will look for is the reason you are going into business and why you expect to do well - this is your purpose. What you want to show is how your product or service offers something different or is better in some way. Create a clear difference between what you plan to do and what others in your industry are already doing.
    Convince a lender that your product or service is needed by focusing on purpose within your Product/Service Description, Market Analysis, and Marketing Plan.
  4. Principal
    Lastly, you need to express your initial investment as well as how much is needed to get started. This will show how much you’ve already bought into your own idea. If you have a large principal investment into your own business, this will show that you are serious about it - which may bode well with a lender. This will also include a funding request with the principal amount that you need to borrow.
    Break down your investment and make your funding request in your Financial Plan.

You’ve got plans for your business, and we have tools to help make them happen – Southern Bank Business Services.

Tips for writing a commercial loan business plan

Now that you know what to focus on within your plan, here are a few tips to keep in mind as you write it.

  • Start Strong - While your executive summary may be the last part you write, it will be the first thing lenders read. Make sure to spend some time making it interesting and engaging. After you’ve written it, read through it and ask yourself, “Would I be interested in hearing more about this business?” That’s likely what a lender will ask as well.
  • Do your research - Make sure that your numbers make sense, as lenders will already have an idea of the markets they lend in. If you come across as unrealistic, it could prevent you from being approved. Spend time researching trends within your local market and industry. Don’t just say how well you expect to do, show it with solid numbers.
  • Make it readable - A business plan that goes on for 100 pages may turn some lenders off. Keep it 5 to 10 pages and be sure to proofread it for any grammatical errors.
  • Brag on your team - Most lenders understand that one person can’t carry a business alone. If you have high aspirations that take skilled work, make sure you highlight the members of your team that will make it happen. This will inspire confidence in the success of your business.

Resources for writing a business plan

If you’re looking for ways to get started, there are several resources available to you.

The Small Business Association (SBA) has a section on their website all about writing a business plan, as well as a step-by-step course on how to write one here.

If you need help getting things organized with your team, you can also check out this template on Miro, which helps you work online with others to get the right information in each category.

Lastly, you can find a number of free business plan templates online - here’s a good one from SCORE, a resource partner of the SBA.