02/ 19/ 2004
by Jeffrey Moses
Whenever you take out a loan for your business, it is important to have a current business plan available for your potential lender. Whether it's your first business loan or your sixth, making sure your business plan answers the lender's questions can make a huge difference.
Because lenders are concerned primarily with how loans will be repaid, some of the things your business plan should cover include overall company strategy, past profitability and profitability projections.
Your introduction and executive summary should include first and foremost the reason for the loan, then a brief company description (including principals, descriptions of products and services), company strategy (marketing plans, pricing, price comparisons), financial history of the company (including outline of annual financial performance), and specific statement on how much money you are requesting.
After describing the loan and your business, you should include a section on market analysis. This section should discuss the market in which your business competes, the products or services your business offers, competitors, demographics of buyers, annual or quarterly projected sales volumes, and marketing plans to reach buyers.
The remaining sections of the loan application should focus on how the borrowed funding will be repaid. Anticipated sales revenues and expenses are one part of this (projected cash flow, repayment schedules and expenses should be listed) -- but in general, lenders want to be assured that the company has the ability to repay loans even if projected revenue levels are not met.
To accomplish this, a current financial overview of the company should be included, with an emphasis on assets (collateral), financial history and current financial statements. Most loan application forms ask for this information, and a company should be ready to provide the following:
- Income sources, including sales, investment income and potential additional loan sources
- Assets including cash on hand, inventory, receivables
- Assets including real estate, equipment, investments
- Total debt, including notes to lenders, accounts payable, taxes (property and income), outstanding stock or shares, etc.
- Calculations of net worth, including various financial ratios (current, liquid, etc.)
