How Business Plans Can Affect Your Business Loan

No matter what type of business you operate, your business plans can make or break your business loan approval. Knowing the critical elements lenders look for can help you streamline the process - and your loan.

Management Profile Section of Business Plans

Before a lender will be willing to approve your loan, they'll scrutinize your business plan to determine whether or not you represent the kind of risk they're looking for. A key element of your business plan, therefore, is to lay out a complete management profile for the lender to review. As the business owner, you are at the top of this list. You need to provide a crisp, concise and factual resume that points out all your prior experience that's applicable to your current business or, if you're just starting up your business, accomplishments, training, education and skills that will transfer to your new business. In addition, you'll need to include resumes and biographies for all your intended (or existing) top management.

What should you do if you know you don't possess the necessary expertise or skill to perform certain necessary functions of your business? In your management profile, include an explanation of how you intend to remedy this situation. Perhaps this means you will hire the right people to carry out the particular task or function, or if you lack training capability, address how you will tackle that requirement. Be sure to mention any deficiencies - because they'll come out anyway during the lender's review - as well as how you plan to compensate for them. Here are three tips to follow.

  1. Present who you are, not what you pretend to be.
  2. Use resume templates as a starting point for your management profile.
  3. Include all key management. Your lender wants to know you've got it covered.

Financial Plan Section of Business Plans

Financial data is the next element of your business plan that can make or break your business loan approval. Lenders focus on this aspect of business plans because it reveals three things: the amount of money and cash flow the business requires in order to carry out the plan, an indication of when the business plans to be profitable and by how much, and the business owner's financial ability and commitment to making the business a success. Here are the items you must cover in your financial plan, according to the Small Business Administration (SBA) Small Business Planner on how to write a business plan.

  • Loan application(s)
  • Capital equipment and supply list
  • Balance sheet (statement of business assets, liabilities and owner's equity)
  • Breakeven analysis
  • Profit & Loss statements (pro-forma income projections)
  • Three-year summaries
  • Detail by month for the first year
  • Quarterly detail for second and third years
  • Include the assumptions upon which you base your projections
  • Pro-forma cash flow

In your cash flow assessment, remember to include in your plan what could go wrong and how you plan to handle those eventualities.

Marketing Plan Section of Business Plans

Without a comprehensive marketing plan, no business plans will be successful in securing a business loan. The marketing plan section of your overall business plan covers several elements:

  • Market analysis - Outline and describe the customers your business intends to capture, include target markets, customer base structure and size, and prospects for growth. Target markets include your primary market defined as customers most likely to buy your product/service. Secondary markets are those customers who are next most likely to purchase your products or services. Finally, tertiary markets are customers who are third most likely to buy from your business. Consider primary and secondary target markets only and do not include tertiary markets unless there is a compelling reason to do so.
  • Strategy for pricing - Establish the price of your product or service using methods such as competitive, demand, and cost-plus pricing. Innovative pricing policies can also be used, including flexible and penetration pricing and market skimming.
  • Plan for promotion - Detail how you will promote your product/service to potential customers, including communications channels you plan to use such as advertising, the Internet, special packaging. Effective promotion also covers your plan's strategy for tracking your customers, learning how and why they came to find you, as well as convincing them to buy your product/service again.
  • Distribution - Lay out in your marketing plan how you'll get your product/service to your customers. Will you use direct sales, wholesale distributors, or brokers? Be sure to include how you will handle returns.
  • Forecast demand - Estimate sales using your market analysis and assumptions on the effectiveness of your product or service relative to pricing, promotion and distribution.