According to Mark Abell, the Senior Vice President and SBA Division director at the NBH Bank, “About 75% of the business plans that come with application-based projections lack at least one or more key areas. Most of the plans that I come across consist of very few pages of half-written points. And those points lack the most important business details, which is just what banks need to know to decide to make a loan.”
Business plans are critical for high-growth companies and startups as well as for those seeking to finance a business acquisition.
Reputable companies that are looking to take things to the next level usually need capital to work. For this, they must have a concrete business plan that identifies how they will achieve growth and demonstrates that their strategies will generate an adequate flow of money to guarantee repayment.
Businesses that are looking to acquire other companies or people seeking to buyout an organization requires a detailed plan that describes the new owners and how they will manage it successfully, as well as what they perceive as opportunities. Here are a few elements to keep in mind that can significantly increase your chances of securing a bank loan for the first time.
FastCapital360.com can help you find and compare loan options and be a great help, especially for first-time loan applicants.
Business plans are for your team and the bank
Creating a detailed business plan is not only to check-off a bureaucratic formality to get a bank loan. It works as a guideline for the company – one that disseminates essential ideas and facts to administrative teams and employees. Creating the plan is a crucial exercise to help founders think about the details while devising the future of their business.
Getting a “yes,” i.e. a go-ahead for your loan application, banks need to have enough details to ensure your business will generate enough cash flow to pay off its debt. Your plan must detail the exact way in which the company will achieve its financial objectives and estimated expenses. It should also state how you expect to make long-term succeed. The statement “our service’s market potential is $100 million, and we estimate that we will earn 7 percent of this” is inadequate.
You should state the exact way you are planning to achieve those earnings and how you seek to capture the market. Your plan should also include an in-depth analysis of your estimated operating costs, and it should also take into account market and economic trends. If the local market is limited, it should state as it is most likely, the banker is already aware of this. Other than this, declare your hiring strategy and how it will affect costs. The purpose of the plan is to categorize all essential ideas and explain them.
Your plan must also summarize the marketing strategy that you have contemplated for your company. Before giving a loan, banks make sure that they know how the business will design and execute its marketing strategy. The plan must answer this question in detail: Why is our product needed, and how can we communicate our message?
Previous experience in business
Before they approve any loans, banks make sure if the owners have enough prior knowledge to run a business. It helps banks to be sure that the estimates are realistic and that they can be successful.
All businesses require a different skill set. A founder with a great CV as a director in a large company may not be the ideal candidate to set up a restaurant. In the case of acquisitions, it is necessary to provide all details about the administrative transition.
Location, location, location
The site of the business can be a surprisingly important detail that contributes to the success. If you want to set up a coffee shop, you must be in a place where people travel every morning. If your success is going to depend on the drivers who pass by, then you need to have parking. If you want to set up a hair salon per se, you do not want to be in a poorly located mall. The business plan must state the exact location and the reason why you think it is ideal for your success.
People in business who do not have the time or experience to put together a detailed plan can hire people who offer assistance at a little cost, and it is worth asking for their help.
Remember that, contrary to investors, the leading precedence for banks is to make sure the return of capital rather than a return on equity. If you have the right plan and proven financial ability to pay the debt, your probability of securing the loan becomes high.