How Do I Get a Business Loan? A Business Plan is the First Step

If you're looking for credit from a vendor or service provider, probably not. But, and it's a huge but, if you're looking for a business loan, absolutely yes.

Bankers can be nervous little critters and need to be assured of two things:

1. Your company is stable and has enough cash flow to pay back the loan with interest.

2. The owners of the company, that's you, has the intention to pay back the loan.

A business plan demonstrates that the company has the assets in place to secure the business loan if all else fails. It also shows that you, as the owner, has the foresight to plan ahead. The business plan gives the banker just about everything they need to know about your company.

What should be included in a business plan? It's not a complicated document to put together. You'll need an executive summary which should be about two pages long and is just, as the title says, a summary of your plan. Also included should be an overview of the history of your company, its industry, the market, competitors, the products, and marketing strategies. The business plan doesn't have to be 300 pages long. As long as all the required information is included it can be 10 to 15 pages in addition to the financial statements.

The business plan also includes the historical financials for the last three years and projected profit and loss statements, balance sheet and cash flow projections for the next three years. If the historical statements can be put together by your account so much the better.

A banker would probably also want to see an aged listing of your accounts receivable and payable. A list of your major accounts would be appropriate as well.

Bankers use the information to learn about the company and the principals. It also gives them documentation for the loan committee to justify the loan, interest rates, and loan covenants.

Of course the bank won't use the business plan as the only information and sole documentation but will verify it with outside information, credit reports, a Dunn's report, and if necessary onsite inspections.

The business plan also serves as a check point. Down the road the banker can look at your current performance and compare it to projected performance in the plan. If there are huge variances, an explanation will be necessary.

Appearances count in a business plan. Have a few trusted advisors read it for clarity; if they don't understand your plan, the banker won't either. And what isn't understood doesn't get approved. Triple check for spelling and grammatical errors, first impressions count. Finally, even if you use a program for forecasting, check the math, and check that any changes you've made in your forecasting model are carried through to your narrative in the plan. It's confusing to find one number for total sales in the financial statements and another one in the narrative.

Have the plan copies on good paper. You can print on both sides of the page if the paper is heavy enough in weight to stop the bleed through to the other side. It's not necessary to use a gold embossed leather binder, but do use a new binder.

Creating a solid business plan is the first step in answering the question: How do I get a business loan?

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