How to Get Banks to Say Yes to Your Small Business Loan
How to Get Banks to Say Yes to Your Small Business Loan. A thorough business plan is a crucial part of any application.
In my experience in banking, more than three-quarters of business plans that come with projection-based applications fall short in one or more key areas. Many of the plans I see consist of a few pages of hastily produced bullet points, falling well short of the detail and color about the business that banks need to make a credit decision.
Business plans are critically important for startups, high-growth companies or buyers seeking to finance the purchase of a business. In fact, they are a useful planning tool for any business, but especially for startups since they have no financial track record for a bank to examine.
Established companies that are planning for accelerated growth often need working capital, equipment or real estate financing to keep growing, and they need a solid business plan that identifies what will drive the planned growth and shows that their plan will result in adequate cash flow to assure repayment of the requested loan.
Businesses seeking loans to acquire other businesses (or individuals looking to buy a business) will need a thorough plan to describe the new ownership, and how they’ll successfully manage the firm, and what they see as their market opportunities and key clients.
A business plan is for the bank and your team.
Having a business plan is not just part of a bureaucratic check-list to secure a loan. Rather, the business plan can be a guiding document for the enterprise — one that communicates critically important facts and ideas to management teams and employees. Writing the plan can be a crucial exercise in helping owners to think through the details as they plot their business’s future.
There are several core elements that a strong business plan needs to have. They apply equally to applications for loans backed by the Small Business Administration (SBA) and for regular commercial loans:
1. Detailed projections
To get to a “yes” on a loan request, banks need enough detail to be assured that your business will have enough profit and cash flow to service the debt. The plan should flesh out precisely how a company will attain its revenue goals and expense estimates, and how it expects to succeed over the long term, not just the next couple of years.
It’s not enough to say “the total market for our service or product is $100 million, and we expect to get 5 percent of it.” Your banker needs to know exactly how you plan to achieve that revenue level by describing key relationships and how they will be converted into clients.
The business plan should also provide a detailed analysis of the anticipated costs of operating and should consider the effects of economic and market trends.
If your local job market is tight, for example, you should say so (your banker likely already knows), and say what your plan is for hiring employees and how that will affect labor costs as the company grows.
The real point of the plan is to identify your key assumptions and provide the thought process behind them.
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