A Guide on How to Make a Solid Business Plan to Secure a Loan
Understanding a Business Plan: Purpose and Key Elements
A business plan is a comprehensive document outlining a company’s goals, operational strategies, and financial projections. It serves as a roadmap for achieving success and guides companies in determining their funding needs for business expansion. It consists of different components, such as:
- Executive summary – A concise overview of the entire business plan.
- Company description – An introduction to the company, including its registered name, address, key stakeholders, structure, history, and nature.
- Market analysis – A study of the company’s target audience, industry landscape, competitors, and market trends.
- Product/service details – A list of the company’s products and services, including their features, prices, and benefits.
- Organizational structure – An outline of the management team, key personnel, and their roles and responsibilities.
- Financial projections – A description of the company’s projected revenue, expenses, profit margins, cash flow, and break-even analysis.
- Marketing strategy – An outline of how you plan to effectively market your offerings, attract customers, and achieve revenue goals.
- Exit strategy – A plan describing the company’s preparedness for mergers and acquisitions, bankruptcy, closures, and other business challenges.
- Appendix – A list of additional information readers may need to comprehend the business thoroughly.
With this essential data, lenders can assess a company’s creditworthiness, character, repayment capacity, working capital, success potential, and collateral. A business plan also helps companies attract skilled executives who can help them overcome other financial challenges and significantly contribute to their long-term growth.
How to Make a Good Business Plan: A Step-by-Step Guide
As the lending landscape evolves, several key small business lending trends are beginning to shape the industry. Some of them include:
If you’re making a business plan for the first time, you must understand that it’s not as easy as it sounds. It requires a lot of time and attention as it will give lenders a complete picture of your business and your ability to succeed. Here are the specific steps for writing a business plan for a loan.
1. Define your business goals and objectives
Just as you wouldn’t purchase a business tool with no potential return on investment, lenders will likely reject your loan application if you don’t have a clear roadmap for your business. As such, clearly articulate your short- and long-term goals to show you have a clear vision and direction for your company.
For instance, if you’re a technology company, you can specify that your short-term goal is to secure at least 50 local clients for a new software product within a year. You can also share that your long-term goal is to position your company as a leader in the software development industry within five years, serving local and international clients.
2. Conduct market research and competitive analysis
Lenders also want to know who you want to serve and how you plan to stand out in your industry. Thoroughly research your target market, customer demographics, industry trends, and competitive landscape to help lenders understand the market potential and your competitive advantage.
You can also include a strengths, weaknesses, opportunities, and threats (SWOT) analysis to show lenders your understanding of your business’s current and potential standing.
3. Outline your products or services
Describe your offerings to help lenders assess the market demand for your products or services. Some details you can put in this section include the following:
4. Prepare financial projections and funding requests
Create financial projections for three to five years, as any further out would make it more difficult for lenders to assess your company’s standing and potential. Your financial projections should include your revenue and expense, as well as how you manage cash flow forecasts, capital expenditure budgets, and balance sheets.
You should analyze these projections based on key financial metrics such as net profit margin, current ratio, and accounts receivable turnover ratio.
Additionally, determine your required funding and clearly explain how you will use the funds to support business growth.
5. Review and refine your business plan
Once you’ve supplied the essential information about your company, thoroughly review and refine your business plan to ensure it’s accurate, up-to-date, and aligned with your goals. Ensure it’s clear, concise, and persuasive to lenders.