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Why Do I Need a Business Plan?
Sections of a business plan, the bottom line.
- Small Business
How to Write a Business Plan for a Loan
How to secure business financing
Matt Webber is an experienced personal finance writer, researcher, and editor. He has published widely on personal finance, marketing, and the impact of technology on contemporary arts and culture.
A business plan is a document that explains what a company’s objectives are and how it will achieve them. It contains a road map for the company from a marketing, financial, and operational standpoint. Some business plans are more detailed than others, but they are used by all types of businesses, from large, established companies to small startups.
If you are applying for a business loan , your lender may want to see your business plan. Your plan can prove that you understand your market and your business model and that you are realistic about your goals. Even if you don’t need a business plan to apply for a loan, writing one can improve your chances of securing finance.
- Many lenders will require you to write a business plan to support your loan application.
- Though every business plan is different, there are a number of sections that appear in every business plan.
- A good business plan will define your company’s strategic priorities for the coming years and explain how you will try to achieve growth.
- Lenders will assess your plan against the “five Cs”: character, capacity, capital, conditions, and collateral.
There are many reasons why all businesses should have a business plan . A business plan can improve the way that your company operates, but a well-written plan is also invaluable for attracting investment.
On an operational level, a well-written business plan has several advantages. A good plan will explain how a company is going to develop over time and will lay out the risks and contingencies that it may encounter along the way.
A business plan can act as a valuable strategic guide, reminding executives of their long-term goals amid the chaos of day-to-day business. It also allows businesses to measure their own success—without a plan, it can be difficult to determine whether a business is moving in the right direction.
A business plan is also valuable when it comes to dealing with external organizations. Indeed, banks and venture capital firms often require a viable business plan before considering whether they’ll provide capital to new businesses.
Even if a business is well-established, lenders may want to see a solid business plan before providing financing. Lenders want to reduce their risk, so they want to see that a business has a serious and realistic plan in place to generate income and repay the loan.
Every business is different, and so is every business plan. Nevertheless, most business plans contain a number of generic sections. Common sections are: executive summary, company overview, products and services, market analysis, marketing and sales plan, operational plan, and management team. If you are applying for a loan, you should also include a funding request and financial statements.
Let’s look at each section in more detail.
The executive summary is a summary of the information in the rest of your business plan, but it’s also where you can create interest in your business.
You should include basic information about your business, including what you do, where you are based, your products, and how long you’ve been in business. You can also mention what inspired you to start your business, your key successes so far, and your growth plans.
In this section, focus on the core strengths of your business, the problem you want to solve, and how you plan to address it.
Here, you should also mention any key advantages that your business has over your competitors, whether this is operating in a new market or a unique approach to an existing one. You should also include key statistics in this section, such as your annual turnover and number of employees.
Products and Services
In this section, provide some details of what you sell. A lender doesn’t need to know all the technical details of your products but will want to see that they are desirable.
You can also include information on how you make your products, or how you provide your services. This information will be useful to a lender if you are looking for financing to grow your business.
A market analysis is a core section of your business plan. Here, you need to demonstrate that you understand the market you are operating in, and how you are different from your competitors. If you can find statistics on your market, and particularly on how it is projected to grow over the next few years, put them in this section.
Marketing and Sales Plan
Your marketing and sales plan gives details on what kind of new customers you are looking to attract, and how you are going to connect with them. This section should contain your sales goals and link these to marketing or advertising that you are planning.
If you are looking to expand into a new market, or to reach customers that you haven’t before, you should explain the risks and opportunities of doing so.
This section explains the basic requirements of running your business on a day-to-day basis. Your exact requirements will vary depending on the type of business you run, but be as specific as possible.
If you need to rent office space, for example, you should include the cost in your operational plan. You should also include the cost of staff, equipment, and any raw materials required to run your business.
The management team section is one of the most important sections in your business plan if you are applying for a loan. Your lender will want reassurance that you have a skilled, experienced, competent, and reliable senior management team in place.
Even if you have a small team, you should explain what makes each person qualified for their position. If you have a large team, you should include an organizational chart to explain how your team is structured.
If you are applying for a loan, you should add a funding request. This is where you explain how much money you are looking to borrow, and explain in detail how you are going to use it.
The most important part of the funding-request section is to explain how the loan you are asking for would improve the profitability of your business, and therefore allow you to repay your loan.
Most lenders will also ask you to provide evidence of your business finances as part of your application. Graphs and charts are often a useful addition to this section, because they allow your lender to understand your finances at a glance.
The overall goal of providing financial statements is to show that your business is profitable and stable. Include three to five years of income statements, cash flow statements, and balance sheets. It can also be useful to provide further analysis, as well as projections of how your business will grow in the coming years.
What Do Lenders Look for in a Business Plan?
Lenders want to see that your business is stable, that you understand the market you are operating in, and that you have realistic plans for growth.
Your lender will base their decision on what are known as the “five Cs.” These are:
- Character : You can stress your good character in your executive summary, company overview, and your management team section.
- Capacity : This is, essentially, your ability to repay the loan. Your lender will look at your growth plans, your funding request, and your financial statements in order to assess this.
- Capital : This is the amount of money you already have in your business. The larger and more established your business is, the more likely you are to be approved for finance, so highlight your capital throughout your business plan.
- Conditions : Conditions refer to market conditions. In your market analysis, you should be able to prove that your business is well-positioned in relation to your target market and competitors.
- Collateral : Depending on your loan, you may be asked to provide collateral , so you should provide information on the assets you own in your operational plan.
How Long Does It Take to Write a Business Plan?
The length of time it takes to write a business plan depends on your business, but you should take your time to ensure it is thorough and correct. A business plan has advantages beyond applying for a loan, providing a strategic focus for your business.
What Should You Avoid When Writing a Business Plan?
The most common mistake that business owners make when writing a business plan is to be unrealistic about their growth potential. Your lender is likely to spot overly optimistic growth projections, so try to keep it reasonable.
Should I Hire Someone to Write a Business Plan for My Business?
You can hire someone to write a business plan for your business, but it can often be better to write it yourself. You are likely to understand your business better than an external consultant.
Writing a business plan can benefit your business, whether you are applying for a loan or not. A good business plan can help you develop strategic priorities and stick to them. It describes how you are going to grow your business, which can be valuable to lenders, who will want to see that you are able to repay a loan that you are applying for.
U.S. Small Business Administration. “ Write Your Business Plan .”
U.S. Small Business Administration. “ Market Research and Competitive Analysis .”
U.S. Small Business Administration. “ Fund Your Business .”
Navy Federal Credit Union. “ The 5 Cs of Credit .”
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How To Write a Business Plan For a Loan
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Capital is crucial for every new startup business, and hopeful entrepreneurs typically use business loans to borrow the needed cash. As you plan to start your new business, you'll need to find a lender that will approve your loan. Of course, lenders base their decisions on several things, but your business plan plays the most significant role. Therefore, you must learn how to write one to increase your odds of the lender approving it. Here's a breakdown of how to write a business plan and what to include.
Do you need a business plan to get a loan?
A business plan is a written loan proposal. It details critical information about your business and persuades the lender to issue a loan to fund it. While the lender might have questions before approving the loan, the business plan should answer most of them. It should also give the lender confidence that you've researched your business and invested time into planning and developing it.
Therefore, if you want to borrow money to fund your company, you need a business plan. A business plan is detailed and requires a plethora of information. It tells the lender the business type, target market, strategies and more. It also reveals how you plan to make money, your projected expenses and expected revenues. Before taking on this challenging task, you must learn how to write a business plan .
How to write a business plan for a loan: key business plan components to include
Creating a business plan for a loan takes time, thought and effort, and needs to contain the following components:
Even though the executive summary is the first paragraph in a business plan, it's the last section you should write. The executive summary recaps the main points of your plan and tells the lender why it should invest in your business. It's a snapshot of your business's highlights and states how much money you want to borrow.
You can choose a business plan template for loan requests to simplify the plan's writing process instead of starting from scratch. Many templates suggest including your mission statement in the executive summary. The core goal of this initial section is to spark the lender's interest in your company. If you can do that, the lender will continue reading it.
This section tells the lender your business type and the industry it's in. It allows business owners to highlight their previous work, jobs and skills to demonstrate experience in the field. It states where your business will operate and who will run the company.
This section also provides the perfect opportunity to explain your commitment to the startup. Be as transparent and detailed as possible when describing this new endeavor. The number one goal of this section is for the lender to fully understand what your business does.
Products or services
Every business sells products, services or a combination of both. Selling something — whether it be a product or a service — is how a business generates revenue. Start by describing in detail what your business will sell. Next, highlight the features that set your products and services apart from those of your competitors. List the patents or copyrights of your goods, if applicable, and list the things your business needs to operate. For example, you might need a building from which to operate or equipment to produce products.
Creating a business that offers a unique product or service is nearly impossible today. As a result, your business will likely compete with other businesses. You must address this in the market analysis section of your business plan for funding. What other local businesses have similar products or services? How do you plan to attract some of this market? You might include some details about your target customers, such as their demographics. Finally, include a brief synopsis of your marketing plan in this section.
Lenders want to know if your business will succeed before they approve your loan proposal. Therefore, they want to know that you've thoroughly researched your competition. You can list your competitors in this section, including their products and services.
Next, give a more detailed analysis of what differentiates your services and products from theirs. What is unique about your company? What advantages will your company have over its competitors? Keep in mind that lenders base loan decisions on risk levels. If the lender can't see the need for your business's products, they might turn down the loan. The goal of this section is to convince the lender that there is a demand for your company's products and services.
Next, include specific details about your marketing strategy, including financial plans. How much money will you spend on marketing efforts? What methods will you use? How do you know they'll be effective? Marketing is a massive part of a business strategy, so your plan must answer these questions.
The operational plan explains how you'll execute your business startup to the lender. It reveals more details about your company's location, its target market and the equipment and software you'll use. Additionally, it explains the processes you'll use to produce or sell your goods.
A business plan must also list the management team. You might be the sole owner of the business, but will you work alone? If not, who will work for you? Not only should you list their names, but you should also describe each person's experience, skills and qualifications. Additionally, explain each person's roles, duties and responsibilities and the hierarchy of the management structure.
The purpose of writing a business plan is to request a loan. Therefore, you must include your funding requirements in the business plan. How much money do you want to borrow? How will you spend it? You should explain in detail how you will spend the funds, as this validates your need for the loan. The lender can see if you have a clear plan and if the plan makes sense.
This next section outlines your company's projected profitability, which is vital for repaying the money you borrow. Lenders spend a lot of time reading through the financial parts of a funding request. When writing this section, begin by stating your projected annual revenues for the next three to five years. Next, include income statements to highlight your company's potential net profits. You can also include forecasted balance sheets, which help the lender see your assets, liabilities and capital.
Including a break-even report is also helpful. This metric reveals how much you must sell to cover your expenses. For a lender, it reveals safety margins, helping lenders assess risk levels.
This section offers a place to add supporting documents to the plan. It should contain a list of your business licenses and permits needed to operate the company. You can also include your management teams' resumes and a copy of your lease agreement for the space you'll rent. Include any other documents the lender might want to see, such as contractor or business arrangements.
Many businesses hire lawyers to create their business entities. Include these legal documents if you created a business entity. If you haven't created one yet, you should consider which type to use. An LLC is a good option, as it provides tax benefits and liability protection. You can look for the best LLC loans if you choose this route.
The 5 Cs of Credit: how lenders score your business loan application
You submit a business plan to secure funding, but a lender must approve the plan before you receive the loan. Lenders determine how to respond to business loan requests by analyzing the business plans they receive. To do this, they look at five primary things.
Character reveals intangible qualities about you and those who will work with and for you. Lenders look for integrity and honesty and try to answer the question, "Is this person trustworthy?" Lenders analyze your personal credit history to determine your creditworthiness. In addition, lenders evaluate your job experience, reputation and qualifications. They also look at your previous endeavors to determine the risk level associated with offering you a business loan.
Lenders spend a lot of time analyzing a borrower's ability to repay the money they borrow, and they call this capacity. Are you capable of repaying the money if they approve the loan? To determine the answer, your lender will thoroughly review your projected revenue. Additionally, lenders analyze the forecasted financial statements, including cash flow statements. Lenders review the products and services you'll offer to ensure there is demand and consider your funding request and your plans for using it.
Next, the lender looks closely at your capital. They want to see how much money you have invested in the business and compare it with the amount you're requesting.
Your investment shows your level of commitment. A large investment into your business startup shows the lender you're serious about making it work. It also tells them you've researched it, worked hard on planning it and expect to make a good profit from it. Therefore, make sure your business plan clearly indicates your investment amount.
In addition to your investment, the lender wants to know what you can offer as collateral. For example, you could offer the building you'll operate out of as collateral if you own it or have equity in it. You could also use equipment, machines or vehicles. Being willing to offer assets as collateral improves your odds of getting the loan.
Finally, lenders will look at the following conditions:
- Demand for your service: Proving a high demand for your products is critical to get a loan approved.
- Competition: Your lender will evaluate the competition and look for things that distinguish your business from your competitors.
- Trends and marketing strategies: Will there be a demand for your products in the future? If so, does your plan outline how you'll reach more people? Lenders look at your digital marketing strategies, as this is the newer trend. It also looks at your advertising strategies, including your website, SEO strategies and inbound marketing plans.
Summary of Money's how to write a business plan for a loan
Learning how to write a business plan for a loan is essential. Your chances of getting approved for startup funding are significantly higher with a clear, thorough and well-researched business plan. Your plan should contain a comprehensive description for each section, allowing the lender to learn as much as possible about your business endeavor. After submitting it, the lender will use the 5 Cs to analyze your loan proposal. A well-written and researched business plan is imperative for any new business startup or newly formed company that needs to borrow some cash.
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How To Write A Business Plan for A Bank Loan (3 Key Steps)
Wondering how to create a business plan that will wow your banker.
You're not alone.
Most entrepreneurs see writing a business plan as a gargantuan task – especially if they've never written one before.
Where do you start?
How do you calculate the financials?
How can you be sure you're not making a mistake?
And if you need a business plan for a bank loan, getting this document right is absolutely essential.
So here's what we recommend: simplify the planning process by breaking the work up into manageable, bite–sized steps. That way, you can focus on one section at a time to make sure it's accurate.
Here's a quick overview of the step–by–step process we guide entrepreneurs through when they sign up for LivePlan.
Step 1: Outline The Opportunity
This is the core of your business plan. It should give loan officers a clear understanding of:
- What problem you're solving
- How your product or service fits into the current market
- What sets your business apart from the competition
There are three key parts to this step:
The Problem & Solution
Detail exactly what problem you are solving for your customers. How do their lives improve after you solve that “pain point” for them?
We recommend actually going out and chatting with your target audience first. That way, you can validate that you're solving a real problem for your potential customers.
Be sure to describe your solution in vivid detail. For example, if the problem is that parking downtown is expensive and hard to find, your solution might be a bike rental service with designated pickup and dropoff locations.
Who exactly are you selling to? And roughly how many of them are there?
This is crucial information for determining whether or not your business will succeed long–term. Never assume that your target market is “everyone.”
For example, it would be easy for a barber shop to target everyone who needs a haircut. But most likely, it will need to focus on a specific market segment to reach its full business potential. This might include catering to children and families, seniors or business professionals.
Who are your direct competitors? These are companies that provide similar solutions that aim to solve your customers' pain points.
Then outline what your competitive advantages are. Why should your target market choose you over the other products or services available?
Think you don't have any competition? Think again. Your customers are likely turning to an indirect competitor that is solving their problem with a different type of solution.
For example: A taco stand might compete directly with another taco stand, but indirectly with a nearby hot dog vendor.
Boost your chances of securing a loan
See how LivePlan can help you write a fundable business plan
Step 2: Show how you'll execute
This is where the action happens! Here you'll get into the details of how you'll take advantage of the opportunity you outlined in the previous section. This part demonstrates to banks that you have a strong plan to achieve success.
The three main components of this step include:
Marketing & Sales Plan
There can be a lot of moving parts to this one, depending on your business model.
But most importantly, you'll need to fully explain how you plan to reach your target market and convert those people into customers. A few example of what should be included:
- Positioning strategy. What makes your business both unique and highly desirable to your target market?
- Marketing activities. Will you advertise with billboards, online ads or something else entirely?
- Pricing. What you charge must reflect consumer demand. There are a few models to choose from, including ‘cost–plus pricing’ and ‘value pricing.’
This is the nuts and bolts of your business. It's especially important for brick–and–mortar companies that operate a storefront or have a warehouse.
You may want to explain why your location is important or detail how much space you have available. Plan to work at home? You can also cover your office space and any plans to move outside your house.
Any specialized software or equipment and tools should also be covered here.
Milestones & Metrics
Lenders and investors want to be confident that you know how to turn your business plans into financial success. That's where your milestones come in.
These are planned goals that help you progress your company. For example, if you're launching a new product your milestones may include completing prototypes and figuring out manufacturing.
Metrics are how you will gauge the success of your business. Do you want to generate a certain level of sales? Or keep costs at a certain level? Figuring out which metrics are most important and then tracking them is essential for growth.
Step 3: Detail your financial plan
This is the most crucial – and intimidating – part of any business plan for a bank loan. Your prospective lender will look especially close at this section to determine how likely your business is to succeed.
But the financial section doesn't have to be overwhelming, especially if you break the work into smaller pieces. Here are 3 items that your plan must have:
Simply put, this is your projections for your business finances. It gives you (and the bank) an idea of how much profit your company stands to make. Just a few items you'll need to include:
- Revenue. List all your products, services and any other ways your business will generate income.
- Direct costs. Or in other words, what are the costs to make what you sell?
- Personnel. Salaries and expenses related to what you pay yourself, employees and any contactors.
- Expenses. Things like rent, utilities, marketing costs and any other regular expenses.
Exactly how will you use any investments, loans or other financing to grow your business? This might include paying for capital expenses like equipment or hiring personnel.
Also detail where all your financing is coming from. Lines of credit, loans or personal savings should be listed here.
Bankers will be giving this section a lot of attention. Here's what you'll need:
- Profit & Loss. This statement pulls in numbers from your sales forecast and other elements to show whether you're making or losing money.
- Projected Balance Sheet. This is likely the first thing a loan officer will look at: it covers your liability, capital and assets. It provides an overview of how financially sound your business is.
- Projected Cash Flow. Essentially, this statement keeps track of how much money you have in the bank at any given point. Loan officers are likely to expect realistic monthly cash flow for the next 12 months.
Don't forget the Executive Summary
The Executive Summary is the first section of your business plan, but we recommend you tackle it last.
It's basically an introduction to your company, summarizing the main points of your plan. Keep it to just one or two pages and be as clear and concise as possible.
Think of it as a quick read designed to get the lender excited about your business.
If you need help writing your plan
Not everyone feels confident writing a business plan themselves, especially if it's needed to secure a bank loan.
And although you don't need an MBA to write one, getting your business plan right often does require quite a bit of work. So if you need help writing your plan, here are two options to consider:
- Hire a professional business plan writer to do it for you. This is typically the most expensive route, but worth it if you're pursuing $100,000 or more in capital.
- Sign up for LivePlan. It's business planning software that walks you through a step–by–step process for writing any type of plan. It's an affordable option that also gives you an easy way to track your actuals against your business plan, so you can get the insights you need to grow faster.
LivePlan makes it easy to write a winning business plan
No risk – includes our 35-day money back guarantee.
How to write a business plan
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Every business owner can benefit from writing a business plan, including those in the early stages of launching a business . A well-crafted business plan communicates the business’s strategy for growth to key leaders and investors. It’s also an important step to getting a business loan since many lenders require it.
Let’s walk through the steps and elements of writing your ideal business plan.
- A business plan outlines how you plan to bring products or services to market
- Many lenders require a business plan be included with a loan application
- You can choose to write a lean or traditional business plan
- It covers everything from market research to your marketing and financial plan.
What is a business plan?
A business plan is a document that outlines a business’s strategy for bringing a product or service to market. It describes the company, product idea and goals or steps that the business will take to achieve growth. The document includes multiple sections that provide insight into each part of the strategy.
The business plan can be a simple document called a lean business plan or a more detailed traditional business plan. The lean business plan covers the basics of the company, product, target customers and how it will get revenue. It may only be one page with short descriptions for each part.
The traditional business plan includes more depth on the goals, measurements, research and marketing strategies to get the business where it’s going. Here are key differences in the information written for each type of business plan:
Although there’s no one-size-fits-all approach, follow these steps to create a strong business plan.
Write an executive summary
An executive summary is the introduction to a business plan, giving the key details about your business model and the product or service you’re offering. While there’s no strict formula for writing this section, you should include all the relevant details that you’d want a key partner or investor to know.
It should describe your product or service idea, target market and key objectives for growth within the next few years. It may also summarize your marketing and sources of revenue or funding.
You can adjust what to include based on the exact business you’re starting and its business model. Most business plans keep the executive summary to one to two pages.
Create a company description
The company description should overview important details about your company. It can state your company’s name, location and type of entity as well as describe its history. It should also clearly define the vision that you have for your company’s future in the form of a mission or vision statement.
You may also outline the structure for managing the business, listing key roles and responsibilities and the people filling those roles. Depending on the details you included in the executive summary, you might include information about your product or service.
Describe your value proposition
The value proposition is your chance to pitch what makes your business stand out. It identifies the customer’s problem or gap in the market for the product or service you’re offering. It then goes into detail about how your business will solve the problem.
The value proposition can also explain major barriers that customers have before making a decision and what your business will do to break through those barriers. It shows leaders and investors that you have a thoughtful purpose behind the business you’re creating.
State your business goals
The path to achieving success starts with knowing what success looks like. Many business plans state its main objectives in the company description. Others describe those goals in a separate part of the business plan to dive deeper into the specific goals.
You can also include key measurements you’ll use to gauge whether your business is achieving its goals. You would then use these goals in other business planning documents, further breaking them down into defined short-term steps that ladder up to the larger goals.
Outline your product and service
Next, you want to dive into the main product or service that your business is offering. Explain what the product is, how it works and the benefits that it brings to customers. If you’re planning to make multiple products, you can include a description of each product line. Show how this product or service is set apart from similar products from competitors.
You can also use this section to show how the product or service is produced, including cost of supplies and the price at which you plan to sell. Let the investors and stakeholders know if you have a trademark or patent for the products you’re creating.
Give a summary of market research
Next comes market research, the part of the plan where you do your due diligence to gather information and understand your target customers and competitors. First, you want to understand your target customers’ needs and any barriers they might have to buying your product.
You want to look for information about their demographics and how they might respond to the product you’re offering. This information will help you when designing your product and marketing it in a way that resonates with customers.
Then, you can look at the economy around your product, such as average pricing and sales revenue. This also includes research about your competitors, the market share that they hold and the barriers to entering your market. This section may include data from data research companies, surveys, focus groups and interviews.
According to the U.S. Small Business Administration , the questions you’re trying to answer include:
- Market size, or how many people may want to buy your product
- What people are willing to pay for your product
- Similar products already available
- Who your competitors are
- How your industry is doing
- Typical revenue gained by small businesses in your industry
Summarize a marketing strategy
Once you’ve clearly defined your product and who you’re selling to, you can come up with a strategy for how you’ll reach and sell to customers. In this section, you’ll include the different marketing channels you’ll use to promote your products and services.
These may include direct mailers, social media, traditional or online advertising or media events. The exact channels you use will depend on where you can easily find your target customers.
You can also describe the key messaging that you plan to use during marketing, which will pinpoint the value that it offers to customers. The marketing plan should also include the cost of marketing to different channels and your marketing budget. You can then outline the marketing goals and measurements you’ll use to see if you’re meeting those goals.
Create a logistics and operations plan
The logistics and operations section of your business plan is a detailed description of how your business will bring products and services to market. It explains how the business will run on a day-to-day basis. It should highlight your company’s management structure, give an overview of processes and describe the workflow from end to end. It can also include data on how many products you can make or how long it will take to make products or offer services.
Create a financial plan
Now that you’ve laid out the research, goals and planning, you can use that information to forecast revenue and build a financial plan. Use any past revenue or sales history as a starting point. Then, refer to your company’s recent growth and goals to calculate future financial growth.
If you’re a startup , you can use market research to estimate revenue for a startup in your industry. You can either forecast revenue manually or find software that projects revenue for you.
In your financial plan, you also want to create and track your business budget . You’ll track your estimated and actual revenue, updating regularly to keep the revenue forecast accurate and realistic. Next, you’ll list all expenses and their amounts, including one-time, variable, fixed or seasonal expenses. Here are some examples of different business expenses:
- One-time or capital expenses: Equipment, real estate, furniture, commercial vehicles, business licenses
- Variable expenses: Inventory, utilities, fuel, office supplies, shipping services, card processing fees
- Fixed expenses: Employee salaries and benefits, software, web hosting, office or equipment leases, business loan repayments
Business plan resources
Writing your business plan will take more than putting pen to paper. Try these resources to help you gather data, set up your finances and more:
- Business plan templates. Creating a business plan for the first time? Learn by looking up examples of other business plans or templates like these from Smartsheet .
- Software for accounting and financial planning. Many small businesses use Quickbooks, Xero or Netsuite to track revenue and expenses. These may also forecast revenue based on sales history.
- Business loan resources. To cover your funding needs, think through the types of business loans that would best serve your business. Once you’ve landed on a loan, compare features and interest rates to help you make a decision.
- Survey tools. For in-depth market research, you can build a survey and send to your target customers through a data research company like GWI.
Small business mentoring
Experienced mentors can guide you to making effective business decisions and unlock new potential for growth. Where to find small business mentors:
- SBA. You can find resources and free or low-cost mentors through the SBA’s local assistance tool .
- Small Business Development Centers. SBDCs provide specialized training programs in your local area covering specialized topics like marketing, data research and business management.
- Community Development Financial Institutions. CDFIs are financial organizations like banks and credit unions that are built to develop the community. Alongside banking and lending services, CDFIs offer training programs and resources.
- SCORE. SCORE is an organization that partners with the SBA to bring resources to small business owners. Mentorship is at the core of what the organization does, and it can match you with a local mentor through its online locator tool.
- Local Chamber of Commerce. These local organizations are known for supporting business networking. They may help you find a mentorship program, or you may build a relationship with another successful entrepreneur through networking events.
- Nonprofit organizations. Some nonprofit organizations are dedicated to supporting small business owners with funding, trainings and mentorship programs. These are typically local programs. For example, NYPACE is a nonprofit that offers free consulting to underserved entrepreneurs in New York.
Your business plan should outline key information about your company, products and the strategy for getting those products in the hands of your customers. Every business plan looks different, but there is essential information to include in every plan, such as who your target customer is and your expected revenue. The business plan serves to help you get business funding and outline exact goals and steps to growing your company.
Frequently asked questions
Do i need a business plan to apply for a business loan, how do i write a simple business plan, what basic items should be included in a business plan, related articles.
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How to Write a Business Plan to Apply for a Loan
What is a Business Plan?
Executive summary, company description.
- Market Research
Check how a business plan looks like for a restaurant business and for a construction company .
Why Do You Need a Business Plan When Seeking Funding?
- Your business expenses
- Projected revenue and profits
- Business description
- Management structure
- Expected future expenses
- How much funding your business needs
How to Write a Business Plan to Increase Your Chances of Getting a Loan
Management structure, marketing strategies.
- Projected expenses
- Sales projections
- Marketing costs
- Inventory costs
- Planned future purchases (such as real estate, equipment, etc.)
- What the funding will be used for
- How the loan will generate value for your business
- How you can repay your loans
- Whether or not you expect to need additional funding in the near future
- Anything else regarding your company's funding needs
Increase Your Chances of Approval With Camino Financial
- Time in Business : 12 months active and registered
- Loan Amount : Up to $25,000
- Annual Gross Sales Requirement : $30,000
- Collateral : Not required
- SSN : If you don't have one, you can apply with an ITIN
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How to Write a Business Plan for a Loan
Writing a business plan for a loan , also known as a loan proposal, involves anticipating and detailing a company'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 : Get approved and funded in the same day with a Business Loan from Uplyft Capital .
What Is a Business Plan?
A business plan is a document made to prove that a venture will be successful by giving an idea of what the market the company 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 company is ever formed.
Here are some things a good business plan can do for an entrepreneur:
- Help them get funding and support for their venture. Lenders and investors love successful propositions and ideas. A good plan lays out the groundwork for a company.
- 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 company.
- Keep them focused on the business. A lot goes into operating a company. A good plan helps an owner stay on track because it provides a fully detailed plan of action while magnifying the details in the first section.
Why Do You Need a Business Plan to Get a Business Loan?
Whether you are a startup 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 companies are perfectly planned out and put together. So, regardless if you've ever prepared a plan or not, this article will help you draft a business plan with the specific intention of impressing lenders, so you can get a loan.
Here are some reasons you need a business plan to get a small business loan:
- Shows lenders that you’re serious about your company.
- 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 loan.
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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 profitable.
Here are the sections you need to have in your business plan and how to write each one:
Market analysis, company description, organization and management, marketing and sales management, service or product line, request funding, financial forecasting and projections.
Recommended: Read our business planning guide for more information on how to write a business plan.
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 company money is not a risky proposition for them. You’ll also want to include financial information and goals for 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 company and know how to grab as much market share as possible.
As the name indicates, the company description is the section of your 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.
Every venture has a hierarchy structure that begins with a Director or CEO, all the way down to general employees.
Your 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.
Every company 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.
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 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.
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. 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.
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Have a question leave a comment.
How to Write a Business Plan for a Loan
Business plans are often required when applying for funds from venture capitalists or other private investors, but even if you are seeking a bank loan for your company it is very helpful to prepare one since the lender wants to be confident that he is taking on an investment with growth potential so that you can repay the loan.
In this article, you will learn about the types of business loans, the importance of the business plan in your application for a loan, and how to write a business plan that will help you get the funding you need for your company.
Download our Ultimate Business Plan Template here
What Is a Business Loan?
A business loan is funding that is provided by a financial institution to a company for it to carry out its day-to-day operational activities. It also supports the purchase of equipment, refinancing of debt, and other purposes. Small businesses might need these loans because they may not have enough funds to buy equipment, refinance debt, or because they encounter financial difficulties.
Your Loan Application
You can apply for a commercial loan with your local bank, credit union, Small Business Administration (SBA) lender, or community development financial institution like Capital Impact. You should expect that the lender will ask you detailed questions about all aspects of your business to ensure that he or she is lending you money that will be repaid.
In addition, if you are looking to purchase a business or commercial real estate, the lender may ask for additional information and documentation to assess your qualifications and ability to repay the loan.
Before applying for a business loan it can be helpful to research different types of loans so you understand what is available and what you will need to pay attention to in your loan proposal.
Common Types of Business Loans
There are many types of loans for small businesses, including:
- lines of credit
- commercial mortgages
- equipment financing
Contact different lenders in your area to see what kind of loan terms they offer and if their interest rates are within your budget.
What is a Business Plan?
A traditional business plan is a document that provides an analysis of the present situation and future financial projections for a company. It includes details about the owners, management team, customers, location of the business, finances, marketing plan, and other information.
A comprehensive and well-researched business plan will help lenders make informed decisions about providing a loan for your business.
To help you get started, you can download our sample business plan for bank loan pdf .
Why Do You Need a Business Plan to Get a Business Loan?
A loan proposal business plan is your opportunity to show the lender you understand your business, its capabilities, and how it operates within the industry in which it competes. By putting together a clear and concise document that outlines all of this information, the lender should have a much easier time understanding how you have arrived at your numbers and where you are going in the future.
A business plan is also helpful to the lender because it provides an opportunity for him or her to ask you questions, further clarifying details that might not be clear from your application materials alone. This way the lender can walk away from the meeting with a good understanding of what he or she is loaning money to and how likely it is he or she will see the loan repaid.
How to Write a Business Plan to Get Approved for a Loan
Different lenders may ask for different sections of your business plan, but most require some combination of the following key elements.
1. Executive Summary
The Executive Summary is the first section of your business plan that a lender will read, but typically the last section written. It is very important because it acts as a snapshot of your business plan and allows the person reading to get an overview of what you are proposing.
The summary should include:
- A statement about why you need the business loan
- Details on how much money you want to borrow, when you will repay it, and interest rates
- A description of how the proceeds from the loan will be used
- Your business’s historical and projected financial information (again)
- The expected impact on your company and the industry as a whole if you are successful.
2. Company Description
In the Company Description, you should include basic facts about your company such as:
- What is the business structure (corporation, partnership, limited liability company (LLC), etc.)?
- How long has your company been in operation?
- What is the size of your workforce?
- What accomplishments or milestones have you achieved within the last year?
This section should also include information about your future business plans.
- How do you plan to expand, if at all?
- Who are your main competitors and how is your company different from them?
- What changes will you make to excel against these competitors?
3. Industry Analysis
In the Industry or Market Analysis, you should include information about your industry in general.
- What are the strengths and weaknesses of your industry?
- How will your company compete in it?
- What trends within the industry affect its future success or potential struggles?
You may also include information about your specific niche in the market. If your company operates in a very specific area of the industry, be sure to highlight it.
4. Customer Analysis
The Customer Analysis section of your business plan helps a lender understand who your customers are and why they will buy from you.
In this section, you should include information on the following:
- Your target audience and the individual customer segments
- How many potential customers you have within your target market
- How much your customers typically spend, and how much you expect them to spend in the future
- What has caused these changes or trends to occur and how they will impact your business
5. Competitive Analysis
This section should show the competitive landscape and how you plan to compete against your competitors.
- What are their strengths?
- Where do they fall short?
- What changes will you implement to get ahead of them?
- What are your company’s competitive advantages over these competitors?
6. Marketing Plan
This section should include a detailed description of the marketing strategy you plan to implement.
- What is your customer acquisition cost? How much will it cost you to bring in one new customer?
- How will you reach these potential customers? Be specific about your marketing strategy, advertising methods and costs.
- Who is responsible for implementing each part of the marketing plan and how much it is expected to cost?
7. Operations Plan
Your Operations Analysis should describe the way your company currently operates and how it will operate with the help of the loan.
- What are your company’s strengths? Weaknesses?
- What have you implemented in the past 12 months that has led to increased revenue, decreased costs, or improved efficiency?
- How will you continue to operate efficiently with the proceeds?
8. Management Team
In the management section, you should describe your business in terms of its personnel structure.
- What are the responsibilities of each person on your team?
- Who are they? What are their qualifications?
- How will their roles change when you receive the loan proceeds?
9. Financial Plan
This section should include your company’s financial statements include the projected income statements, projected balance sheet, and cash flow statements for the next 3 – 5 years.
You can assume that you will receive loan proceeds in 20XX, so plan accordingly.
Include a five-year break-even analysis and an explanation of how you arrived at your income statement and cash flow projections. Don’t forget to include interest and loan payments in your financial projections.
In this section, you will include the supporting documents for the claims within your business plan. This section should include:
- A loan agreement
- A list of all applicable business licenses, permits, etc. that your company holds or has applied for
You may also include:
- An organizational chart for your company
- The resumes of the members of your management team
- The resumes of any employees who will be making a significant impact on your business with the loan money
- Copies of contracts, leases, and other agreements that are relevant to your business plan
- Complete financial statements and projections if you only include a summary in the Financial Plan section
These documents should be attached to your business plan in a separate file if they are not included and may need to be submitted with the final small business loan application.
Tips for Writing a Business Plan for a Loan
To have a successful business plan and loan application, you need to know exactly what information your loan officer is looking for and how to find it.
- Before you submit your application, be sure to carefully edit and proofread it for errors. Errors in a business plan may lead a lender to question your attention to detail, so make sure it is polished and error-free.
- Always be sure to include an executive summary of the main points of your plan at the beginning, as some loan officers may not read all of the details.
- Be sure to keep your tone professional and business-like.
- Include detailed financials, market analysis, and other crucial information.
- Remember that any omission or inaccuracies will be carefully scrutinized by a lending officer, so be sure you have all of the necessary documents before submission.
- Finally, remember that lenders often appreciate creativity and outside-the-box thinking when it comes to business plans, but don’t let it distract from the necessary information for your application.
Writing a good business plan is one of the most important and necessary steps toward securing a loan or other source of capital.
Use our proven business plan template provided below, and you’ll be able to give your lender all of the information they need to make an informed decision.
The key is to do it right. By following the steps outlined above and including all of the necessary documents (and editing/proofing your application), you should significantly improve your chance of securing a loan for your business.
How to Finish Your Business Plan in 1 Day!
Don’t you wish there was a faster, easier way to finish your business plan?
With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!
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How to Write an SBA Business Plan — SBA Template and Checklist
6 min. read
Updated October 27, 2023
Applying for an SBA loan for your business requires preparation. You need to gather paperwork not only on your personal finances but on your business history and your projections for the future .
For most SBA loans, you’ll need to put together a business plan—one that shows how funds will be used and how the business will repay the loan over time. While this is not too different from a traditional business plan, there are some important details that you’ll need to pay attention to.
Here’s what you need to know about SBA business plans and how you can maximize your chances for approval.
- What is an SBA loan?
SBA loans are loans that are issued by banks and credit unions, but backed by the US Small Business Administration—the SBA. That means that if you default on your loan, the government helps repay the bank that issued the loan.
The SBA requires personal guarantees from anyone that owns at least 20% of the business. This means that when you get an SBA loan, you are putting your personal assets on the line in the event that your business can’t repay the loan.
SBA loans are also typically targeted at businesses that have at least 2 years of history and strong financials. If your business is a startup or is struggling, an SBA loan may not be the right fit for you.
Despite the personal guarantee requirement, SBA loans are a popular way for small businesses to fund growth and expansion. For more on SBA loans, read our complete guide .
- Why you need a business plan for SBA loans
SBA loans require a good amount of documentation on both your business and your personal finances. You’ll need to pull together your past tax returns, bank statements, and various application forms depending on the type of SBA loan you apply for.
Beyond gathering information about the past, the bank that is issuing the loan is going to want to know about the future of your business. They’re going to want to see how the loan is going to get used, and that your future cash flow projections indicate that your business will be able to afford loan payments.
That’s where an SBA business plan comes in. In addition to all the other documentation required for the loan, you’ll need to produce a business plan to accompany the rest of the loan application.
Not only will your business plan describe your business to your lender, but it will also have the financial projections that the bank is going to need to help determine if you qualify for the loan.
- How long does an SBA business plan need to be?
The SBA doesn’t have an official recommended or required business plan length. As a general rule of thumb, though, you should try and make your business plan as short and concise as possible . Your business plan is going to be read by a bank loan officer and they are going to be less than excited about the prospect of reading a 50-page business plan.
If possible try and keep the written portion of your business plan between 10-15 pages. You’ll then also have your financial forecasts that will take up several pages.
Create a business plan that maximizes your chances of securing funding..
A great way to start your business plan is to start with a simple, one-page business plan that provides a brief and compelling overview of your business. A good one-page plan is easy to read and visually appealing. Once you have your one-page plan, you can expand on the ideas to develop your complete written business plan and use the one-page plan as your executive summary.
Loan officers will appreciate a concise overview of your business that provides the overview they need before they start taking a look at your financial plan and your complete business plan.
- How to write a business plan for your SBA loan application
Like any good business plan, a business plan for an SBA loan will cover the fundamentals:
1. Executive summary
A one-page overview of your business plan and how much money you’re looking to borrow.
2. Business opportunity
A description of the business you’re in and the problem you solve for your customers.
3. Market analysis
An overview of your target customers and your competition.
4. Sales & marketing plan
A summary of how you sell your product or service and how you market to your target customers.
5. Financial forecast
Anywhere from 3 to 5 years of financial projections, including sales, expenses, and cash flow.
Check out our complete business plan outline to ensure you have everything you need to write your plan.
- How to improve your chances of being approved for an SBA loan
Beyond the basics, though, your SBA business plan needs to include a focus on the loan you are applying for and how that will impact your business financially. Make sure to include the following in your financial plan to increase your chances of success with your lender:
In your executive summary, be sure to document how much money you are asking for. It’s best to put your number out upfront rather than trying to bury it deep within your business plan.
The specific terms of SBA loans are negotiated between the borrower and the lender. However, most SBA-backed loans have a maximum loan amount of $5 million while SBA Express loans have a maximum loan amount of $350,000.
Cash flow forecast
Be sure to include the loan in your cash flow projections. Show when you anticipate receiving the loan and how that will impact your finances over time. Your cash flow forecast will also show loan payments for the life of the loan. Having this prepared upfront will not only increase the chances of your application being approved but will make it much easier to manage the loan after you receive funding .
You’ll also want to show the loan on your projected balance sheet as well as how the loan gets paid down over time. The money that you owe will show up on your balance sheet as a liability while the cash that you received from the loan will show up as an asset. Over time, your forecasted balance sheet will show that the loan is getting paid back. Your lender will want to see that you have forecasted this repayment properly.
Profit & Loss forecast
Your P&L should include the interest expenses for the loan and show how that will impact your profitability in the coming months and years.
Use of funds
In addition to your financial forecasts, you should also include a description of how you plan to use the loan and what aspects of your business you will be investing in. Some SBA loans are specifically for expanding export businesses or for funding real estate transactions, so make sure your use of funds description is appropriate for the loan you are applying for.
- Increase your chances of success with a business plan
A good SBA business plan will increase your chances of success with your lender. Of course, you’re going to also need the required assets for the personal guarantee and your business is going to need to be in good shape overall. But, a business plan that clearly explains your business and has solid financial projections will help your bank decide whether they will issue an SBA loan to you.
If you’re struggling to put together a business plan for an SBA loan, you may want to explore a business planning tool like LivePlan. With LivePlan , you get step-by-step guidance to develop a beautifully designed, SBA-approved business plan that provides everything investors need to evaluate your business.
Create a business plan that maximizes your chances of securing funding
Noah is currently the COO at Palo Alto Software, makers of the online business plan app LivePlan.
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How to Get the Best Interest Rate on Your Business Loan
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The bank prime loan rate, used as a basis by individual banks to set interest rates on their loan products, is currently at 8.50%, its highest level in over 20 years. For small-business owners seeking funding, high interest rates can impact their cash flow and, ultimately, their ability to repay the loan.
Lenders consider a number of factors when assessing the risk of lending money to a business and determining the interest rate that is reflective of that risk. Some of these factors — like age of the business — are outside the control of borrowers, but there are others where business owners can influence the interest rate they’re offered. Understanding these factors, as well as tactics for navigating the loan application process, can help business owners negotiate the best interest rates and terms for their small-business loan.
Build business and personal credit history
Having good credit, both personal and business, is one of the most important factors lenders use to determine a borrower’s creditworthiness and, by extension, the interest rate they’re willing to offer them. Missed payments, accounts that have gone to collection, bankruptcies and other derogatory events can all negatively impact your credit score, as well as a lender's assessment of your credit risk.
“The main thing that affects the interest rate is the track record of your business,” says Carolyn Katz, a mentor at the New York City chapter of SCORE, a nonprofit organization offering education and mentorship to small businesses. “So an established business [usually a 2- to 3-year-old business] with a good credit record is going to get a better interest rate and have more loans available to them. For newer businesses, your personal credit and your personal expertise in the business are going to matter.”
Registering your business as a legal entity, opening a business bank account, establishing credit lines with vendors and suppliers, and making on-time payments can all help you build business credit . Before applying for a loan, also be sure to check your credit report for any errors and work to resolve them.
Have a solid business plan
Taking the time to gather and present thorough business information when creating a business plan for potential lenders can reflect positively on you and your business.
“Coming in well prepared with your financial information, well prepared with your business purpose and the story behind what it is that you're trying to accomplish ultimately leads your banker to have more confidence in their decision to risk their capital by lending it to your business,” says Michael Sims, a market executive at Georgia’s Own Credit Union.
Lenders can also be influenced by your stated use of the loan funds, which you can outline in your business plan. If you’re seeking funding to generate future revenue, for instance, that’s helpful for lenders to know, explains Katz.
“Try to use the money that your business is already generating for soft costs like marketing and personnel. And try to use the loan for more tangible things,” says Katz. This may include the purchase of assets such as a vehicle, commercial property or equipment, for example.
Using collateral to secure funding, meaning you pledge an asset that the lender can take possession of if you default on the loan, can also improve your interest rate.
Offering an asset as collateral reduces the lender’s risk, explains Sims. Real estate, equipment, machinery, or even your inventory and accounts receivable can serve as collateral for a loan.
Select your lender carefully
Traditional banks and credit unions will typically be a borrower's first stop when seeking funding. In addition to their own loan products, some banks and credit unions will also offer SBA loans, which are often competitively priced.
Also, look for community development financial institutions (CDFIs) in your area. These mission-based financial institutions provide resources and funding to underserved communities, typically with competitive interest rates.
When comparing lenders, be cautious of any offer that seems to be too good to be true, especially an unsolicited loan offer, says Katz. Comparing the annual percentage rate of each offer can help you understand the full cost of borrowing — which could include fees in addition to interest rate.
To help in your search, leverage organizations like Small Business Development Centers and SCORE, which offer free services to help small-business owners access funding, including the preparation of financial information and business plans.
On a similar note...
Small Business Trends
Where to get a small business loan.
Starting a small business is an exciting journey, but it’s often met with financial challenges. Access to capital is crucial for covering startup costs, expanding operations, or simply keeping the lights on during tough times.
Many entrepreneurs turn to small business loans as a lifeline for funding their dreams and understanding the small business loan requirements is crucial for a successful application. In this article, we’ll explore the top places to secure a small business loan, covering options that fit different needs and situations.
What is a Small Business Loan?
A small business loan is not just a financial lifeline. It is a crucial part of an entrepreneur’s toolkit. These loans are specially crafted to support the growth and sustainability of small businesses. They provide essential capital, whether it’s for keeping the day-to-day operations smooth, expanding services, or investing in new equipment.
Small business loans are vital for the overall business landscape, helping to ease cash flow issues and enabling business owners to turn their visions into tangible realities. If you’re considering this route, familiarize yourself with how to get a small business loan . They’re more than just money; they’re a stepping stone to bigger opportunities, allowing small businesses to innovate, grow, and make a significant mark in their industries. In essence, these loans can be the catalyst that propels a small business from a dream to a thriving reality.
Why Small Businesses Need Loans
Small businesses frequently rely on loans to fuel their growth and navigate through various stages of their development. These loans are essential for various purposes, such as purchasing inventory to satisfy growing customer demand, expanding operations to new locations, or hiring skilled staff to enhance service quality and efficiency.
Beyond just managing day-to-day expenses, loans represent a crucial resource for strategic investments and seizing emerging opportunities. They provide the necessary capital for renovation, marketing campaigns, or adopting new technologies, which can be pivotal for staying competitive.
Small Business Deals
Effectively, loans empower small businesses to overcome financial barriers, supporting them not only in maintaining their operations but also in achieving significant milestones and scaling new heights. In this way, loans serve as a vital lifeline, enabling small businesses to transform challenges into opportunities for growth and success.
Factors that Influence Loan Approval
When a small business applies for a loan, lenders look at several key factors to decide if they’re a good bet. It’s not just about having a great idea. It’s about showing you can turn that idea into a profitable reality. Lenders dig deep into the nitty-gritty of your business, assessing everything from your creditworthiness to your long-term plans. For deeper insights into this aspect, refer to business loan terminology . Understanding these factors can make a difference in getting that much-needed approval.
Your credit score acts as a financial report card, playing a vital role in the loan application process. Lenders scrutinize this score to evaluate your history of managing debts and making payments. A high credit score opens doors to advantageous loan terms, such as lower interest rates, making borrowing more affordable.
Conversely, a lower score can lead to higher interest rates and stricter loan conditions, making the borrowing process more challenging and expensive. This score isn’t the sole factor in loan approval, but it significantly influences both the likelihood of getting the loan and the financial terms attached to it. Maintaining a good credit score is, therefore, essential for favorable long-term borrowing conditions, impacting not only current loan opportunities but also future financial dealings.
For those with less-than-ideal credit, learning how to get a business loan with bad credit can be especially helpful.
Business Financial Health
When it comes to securing a loan, lenders take a deep dive into your business’s financial health, leaving no stone unturned. They meticulously analyze your financial statements, including balance sheets and income statements, to gauge your business’s profitability and cash flow stability.
A key focus is your debt-to-income ratio, as it reveals how your earnings stack up against existing debts. Lenders look for a business that consistently generates more revenue than expenses, indicating a stable and growing operation. Strong, reliable financial health not only boosts your chances of loan approval but also positions you for potentially better loan terms.
It’s a critical aspect, as lenders seek assurance that your business can manage additional debt and make timely repayments. In essence, robust financials signal to lenders that you’re a safe investment, increasing your credibility in their eyes.
Business Plan and Projections
A well-crafted business plan paired with realistic revenue projections is crucial in convincing lenders of your business’s potential. Entrepreneurs in the initial stages should also explore small business loans for startups . This is your opportunity to demonstrate strategic planning and a clear vision for growth.
Lenders scrutinize your plan for a comprehensive understanding of your market, competition, and operational strategy. They are particularly interested in how you intend to generate revenue and manage expenses. Realistic, well-researched projections give lenders a window into your business’s future financial health.
This not only assures them of your immediate reliability but also your long-term viability. A robust business plan and projections are more than formalities. They are pivotal tools that show lenders your business is more than just a concept – it’s a sustainable enterprise with a clear path to profitability.
8 Great Options for Small Business Loans
When it comes to funding your small business, the options are plenty. Each type of loan has its own pros and cons, fitting different needs and situations. Whether you’re looking for flexibility, low rates, or easy access, there’s a loan type out there for you. Let’s dive into some of the most popular options and see what each brings to the table.
Traditional banks are the go-to for many when it comes to business loans. They often offer lower interest rates and longer repayment terms. But, getting a loan from a bank can be tough. You’ll need a strong credit score and solid financials, and the process can be slow and paperwork-heavy. If you’re well-prepared and not in a rush, a bank loan could be a great, cost-effective option.
The digital world has brought us online lenders, a fast and often more accessible option for small business loans. They’re great for quick approvals and less stringent requirements, but watch out for higher interest rates and shorter repayment terms. Online lenders are a good fit if you need funds fast and don’t mind paying a bit extra for the convenience.
Small Business Administration (SBA) Loans
SBA loans are a bit like a helping hand from the government. They offer favorable terms and rates backed by the U.S. government. While they’re great for lower interest rates and longer repayment terms, the application process can be lengthy and requires thorough documentation. There are different types, like 7(a) or 504 loans, each with unique benefits, catering to various business needs.
Credit unions are like the community centers of the banking world. They’re member-owned and often more personal in their approach. This can mean better customer service and potentially lower rates. However, you usually need to be a member, and their reach might not be as wide as traditional banks. If you’re looking for a more personal touch and community-focused banking, credit unions are worth considering.
Equipment loans are specifically for buying equipment – think machinery, computers, or company cars. They’re great because the equipment itself often serves as collateral, which can make approval easier. But remember, if you can’t pay back the loan, you risk losing that crucial piece of equipment. This loan is ideal if you need to gear up your business but don’t have the cash upfront.
Commercial Real Estate Loans
If you’re looking to buy or refinance a business property, commercial real estate loans are your friend. They’re designed specifically for property purchases, offering potentially large amounts and long repayment periods. However, they often require a hefty down payment and a strong credit score. For businesses ready to invest in their own space, these loans can be a game-changer.
Get a Merchant Cash Advance
A merchant cash advance is like a quick fix. It’s an advance on your future sales, ideal for businesses with high credit card sales. The catch? They can be costly, with high fees and the need to repay from daily sales, which can impact your cash flow. It’s a solid option for those needing quick, short-term cash, but it’s important to understand the costs.
Business Lines of Credit vs. One-time Loans
Lines of credit and one-time loans offer different kinds of flexibility. A line of credit is like a pool of funds you can dip into as needed, only paying interest on what you use. One-time loans, on the other hand, give you a lump sum upfront. Lines of credit are great for ongoing expenses, while one-time loans suit large, one-off investments. It all depends on your business’s specific needs.
Tips for Improving Your Chances of Getting Approved
Getting your loan application approved isn’t just about filling out forms and crossing your fingers. There are concrete steps you can take to make your business more appealing to lenders. From polishing your credit score to crafting a solid business plan, these tips can boost your chances of getting that thumbs-up from lenders.
Enhancing Your Business and Personal Credit Score
Improving your credit score is key. Start by paying bills on time, reducing debt, and checking your credit report for errors. Remember, some loans have a minimum credit score requirement. Work on both your personal and business credit scores. Paying off personal debt can improve your personal credit, while managing business finances wisely can boost your business credit. It’s a game of patience and smart financial choices, but it pays off when applying for loans.
Building a Strong Business Plan
Your business plan isn’t just a formality; it’s a showcase of your business’s potential. Make sure it’s detailed, realistic, and convincing. Highlight how you’ll make money, your market research, and financial projections. A strong plan shows lenders that you’re serious and have thought through your business’s path to success. It’s your chance to impress, so make every word count.
Cultivating Relationships with Lenders
Don’t wait until you need a loan to start talking to lenders. Build relationships with financial institutions early on. Stay in touch, update them on your business’s progress, and seek their advice. This way, when you do apply for a loan, you’re not just a name on a form – you’re a familiar face with a history. Building this relationship can make the lending process smoother and more personal.
Best Place to Get a Business Loan
Choosing where to get a business loan is a big decision. Each option has its own set of benefits and drawbacks, and the best choice depends on your specific business needs. Let’s break down the different sources based on important factors like loan terms, interest rates, credit requirements, and more.
Criteria for Evaluation
When comparing loan sources, consider loan terms, interest rates, required credit score, ease of the application process, speed of approval, and customer reviews. Long-term loans might offer lower monthly payments but higher overall interest. A high credit score can unlock better rates. The simplicity of the application process and how quickly you can get the funds are also key. Customer reviews can give you insights into the lender’s service quality and reliability.
The best place for a business loan really depends on your business’s unique situation. Banks typically offer the best interest rates but require higher credit scores and have a more complex application process. Online lenders are fast and flexible but often come with higher rates. SBA loans are great for favorable terms but involve a lengthy process. If there’s a consensus among businesses, it often points to the lender offering the best balance of terms, rates, and service.
Tips for Choosing the Right Lender for Your Needs
To find the right lender, assess your business’s financial health, how quickly you need the funds, and what kind of payment terms you can handle. If you need cash fast, an online lender might be best. For the best rates and terms, and if you have a strong credit score, consider traditional banks or SBA loans. Think about your long-term relationship with the lender, especially if you’ll need more funding in the future.
When applying for a business loan, be prepared with all necessary information. Don’t hesitate to ask loan questions to understand the process and terms fully.
FAQs: Where to Get a Small Business Loan
How can small business owners improve their business credit.
Small business owners can boost their business credit by always paying bills on time and keeping debt levels low. It’s also smart to establish credit with vendors and suppliers. Regularly checking your business credit report for errors is crucial. Good business credit isn’t built overnight; it requires consistent, responsible financial behavior. This diligence pays off by opening doors to better loan terms and more financing options in the future.
How does personal credit score impact business loan approval?
Your personal credit score is a key factor in business loan approval, especially for new businesses without an established credit history. Lenders see it as a reflection of your financial responsibility. A high personal credit score can lead to better loan terms, like lower interest rates. On the flip side, a low score can make getting a loan more challenging and costly. It’s a vital piece of the puzzle in securing business financing.
Is there a minimum credit score for small business loans?
Yes, many small business loans have a minimum credit score requirement. This threshold varies by lender and loan type. Traditional bank loans often require higher scores, while online lenders might be more lenient. Generally, a score of 600-650 is a common baseline. But remember, a higher credit score not only increases your chances of approval but also helps secure better loan terms like lower interest rates.
What’s key when choosing the best small business loans?
Choosing the best small business loan hinges on several factors: the interest rate, loan term, amount needed, and repayment schedule. It’s also crucial to consider the speed of funding and the lender’s reputation. Each business’s needs are unique, so weigh these factors based on your specific situation. Compare different lenders and their offerings thoroughly to ensure you get a loan that aligns with your business goals and financial capacity.
Will getting a Business Loan improve my credit score?
Getting a business loan can improve your credit score if managed responsibly. Regular, on-time loan payments are reported to credit bureaus, positively impacting your credit history. However, late payments or defaults can hurt your score. It’s important to borrow only what you can afford to pay back and to always make payments on time. A well-managed loan demonstrates your creditworthiness, potentially leading to better credit terms in the future.
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