What Lenders Look For In A Business Plan To Get A Business Loan

A business loan provides business owners with financing either as a lump-sum payment or credit line for it to carry out its day-to-day operational activities. It can also be used to support the costs that comes with growing a business, including working capital, the purchase of equipment, expansion, refinancing of debt, and other purposes. As with all loans, your business agrees to repay the money it borrows over time, plus interest and fees. Depending on the type of business loan, your lender may require daily, weekly or monthly payments until fully repaid. Business loans could either be secured or unsecured. 

Before you can get financing for your business, you need to choose the right type of business loan. There are a number of different types of business loans. The right one for your business will depend on when you need the loan and what you need it for. Here are some of the common types of business loans:

• Term loans

• Lines of credit

• Commercial mortgages

• Equipment financing

Whether you want to buy equipment or expand your business many lenders will ask you to submit a business plan as part of your loan application. A 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. It is also an invaluable document that can be used to apply for a business loan. It conveys to the lender why they should lend you the money to support your business.

A 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. It also provides an opportunity for them to ask you questions, further clarifying details that might not be clear from your application materials alone. Putting together a clear and concise business plan helps the lender to be confident that your business or business idea is sound and the likelihood of it generate profit to help pay back the loan.

The kind of business plan you need to write when applying for a loan will vary depending on your business and your financing goals. Types of business plan includes:

• Business plan for a startup business

• Business plan for an existing business

• Business plan for an acquisition

What exactly do financial institutions look for in a business plan? depending on the intended purpose of the loan they look at a number of things. They may start by looking at the ability of your business to repay a loan or evaluate your project. Will it contribute to the profitable growth of your company in years to come?

Regardless of where they start, financial institutions look to reduce the risk of lending money to your business. The better you present yourself, and the more solid your business plan is, the better your chances of getting your loan approved to get the money you need to grow your business and succeed. Nonetheless, a lender would look for the following elements in a strong business plan: 

• The financial strength of your business: The cash flow it generates, existing debts and the state of your personal finances.

• Assets: Do you have assets to secure the loan, meaning assets the bank can use to repay itself in case of default?

• Projections: Lenders also want to see what you expect to happen financially, looking forward. Discuss both what will occur without funding as well as what projected growth you expect should you receive financing.

• Market: Lenders want to know who you serve, how large the population is, and how viable the market is (e.g., affluence, room for growth, etc.). Lenders also want to know who you are competing with in this space and how you are setting yourself apart.

• Your management credibility: Your personal background, past experience, education and the professional training of you and your management team.

• Before you submit your application, be sure to carefully edit and proofread it for errors.

• Always be sure to include an executive summary of the main points of your plan at the beginning.

• Understanding what your bank needs in the application process ahead of time can make the overall process easier.

• Be sure to keep your tone professional and business-like.

• It is important to pick the right type of business loan for your specific needs.

• Additional preparation, like having a business plan and your financials in order, can help ensure that you are approved for a business loan.

• Include detailed financials, market analysis, and other crucial information.

To see what your monthly payment options could look like, check out our loan calculator to learn more.