How to Write a Business Plan That Will Get Approved for a Loan
If you need funding to start, expand, or acquire a business, you’ll need to know how to write a business plan for a loan . Yes, lenders will look at the standard factors required of all loan applicants, such as your credit history, credit score, and assets — But business loan lenders will also require a business plan.
Why do you need to know how to write a business plan for a bank loan? Because banks want to know your business idea will be viable and sustainable. To assess its viability, they look at all aspects, including financial statements, sales strategies, and your overall financial plan. Your financial projections are key — a good business plan will include several years’ worth of past revenue and profits (if available). It will also forecast sales and profits three to five years into the future. Lenders also want to know what the business is, what products you offer, what the competitive landscape looks like, and who your key personnel are. This information (and more) is used to gauge your business’s chances of success, which will ultimately allow you to succeed and to make loan payments to the lender.
While a business plan for a loan should be clear and comprehensible to loan officers, writing a business plan for a loan also benefits you as the owner. A well-executed business plan serves as a guide to your business. You can use the past financials and the forecasts as blueprints to determine whether you are on track for success, for example.
Tip : When you create a business plan to get a loan, remember you are also writing a document that can be used as a forecast and guide for yourself and your business.
What Does a Successful Business Plan Include?
A strong business plan for a loan application will include the following elements:
- Cover Page and Table of Contents
- Executive Summary
- Company Description
- Market Plan and Analysis
- Organization and Management
- Service or Product
- Marketing and Sales
- Financing Analysis
- Funding Request
Many lenders may still be looking critically at how your business will operate during the COVID-19 pandemic. Lenders are primarily looking at two criteria:
- How the business’s revenue will continue under COVID-19 restrictions and effects.
- How a borrower will safely operate their business.
We recommend adding a “COVID-19” section to your business plan. It doesn’t need to be very lengthy, but it should cover how you plan to keep a safe and sanity working environment for your staff and customers. Place it in or after your Organization and Management section. The information to include is:
- Restricting occupancy
- Stocking up on cleaning supplies and hand sanitizer
- Wearing masks, gloves, or other safety gear
- Wiping down equipment – for example, a fitness facility might wipe down equipment every hour
To address concerns about revenue, include information such as:
- If your state has allowed your industry to reopen
- New or alternative ways to earn revenue if you can’t open a physical location
If you’re looking to open a franchise, make sure to check with your franchisor to learn what protocols for their franchisees they’ve put in place. Lots of franchises have been adding mandatory safety steps for franchisees to put in place.
1. Cover Page and Table of Contents
Your business plan for a loan application is a professional document, so be sure it looks professional. The cover page should contain the name of your business and your contact information. If you have a logo, it should go on the cover.
Both lenders and you will appreciate a table of contents and page numbers in the business plan for a loan application, so they can quickly find specific sections. If you are delivering your plan digitally and not physically, be sure your table of content is clickable and links readers to the correct sections.
2. Executive Summary
It’s common for business documents to carry executive summaries at the beginning so that busy people have the key takeaways from a larger document immediately at hand. Your reader shouldn’t feel they have to wade through a large document for crucial information.
Briefly summarize the entire business plan on a page. Describe the company, your product, and why you started the company. Include your chief competitors and why your product will succeed against them. If relevant, discuss the economic climate vis-à-vis your customers and products.
Tip : The executive summary shouldn’t include a great deal of financial information. If you have a particularly relevant or striking financial result, it can be included.
Example of an executive summary.
3. Company Description
The company description should include a mission statement, the company principles, any strategic partners, and your corporate structure. It will be relatively short.
4. Market Analysis
After you’ve told the lender what your company does and who does it, you’ll want to provide a competitive analysis of your market. Let’s be clear: the market analysis is not a full marketing plan. That will come later. The market analysis focuses on the qualities of the market, not a detailed plan of how you’ll capture it. Identify the existing gaps that your business will fill. A business plan’s market analysis should include:
- An industry overview and outlook
- Any differentiation in sector and niche
- Information on your target market
- The company’s marketing strategy and how it will make your company stand out
The market analysis should also specify the effect of outside sources on your company. For example, if the industry is subject to regulation, include information indicating your knowledge of the regulation and your past compliance with it (if your business is already up and running). Will you require raw materials? If so, how do you guarantee you’ll have them at costs that support your financials? Are there any risks to price points changing?
What about your competitors? How do they differentiate themselves? What is their pricing strategy?
While your market analysis will include information on your competitors, the real focus should be on your target customers. Where do they currently shop? Why? How old are they? What are their beliefs? What’s their current average income? Perhaps there is more than one type of customer, in which case you should include details about both customer segments. Showing investors you have mastery over your ideal customer adds confidence in your ability to succeed.
If your company is engaged in ongoing market research or research and development for competitive new products and services, indicate it in this section. Does your research include customer interviews? How are you ensuring that your research is credible?
The market analysis should be based on reputable sources. When describing your competitors and their products, for example, it should be clear to readers where the information comes from.
Tip : Many business owners engage third-party companies to perform an analysis. If you have, be sure to cite them. If your information comes from published research or a survey, be sure to cite those as well.
5. Organization and Management
The organization and management section should itemize your company’s management structure. Many business plans provide an organizational chart, a structure description, and salary forecasts.
The description should include each management position, the person in the position, their responsibilities, and their qualifications. If you have a Board of Directors, list them on a separate page, along with any experience relevant to your business’s success.
The principals of the firm, such as the owner and co-owners, are included in the business description section. If your company is small and currently contains only the principals, it isn’t necessary to include a separate organization and management section.
6. Service or Product
Now it’s time to describe your company’s product or service in detail. What do you sell, and who do you sell to? What exactly is your business model? What need are you fulfilling for the customer base? Business plans often itemize their entire product line with the planned or current pricing structure.
The service or product section should also include your product/service’s estimated lifecycle, and any research and development completed, in progress, or planned. Naturally, this section will vary greatly depending on your type of business. It should also include a description of any trademarks, patents, or other intellectual property rights, if applicable.
See an example of a service and product section here .
7. Marketing and Sales
The marketing and sales section includes three vital pieces of information:
- How will customers find out about your products?
- What will your sales channels and methods be?
- What is your growth strategy?
If you plan for customers to discover your products or services through informational methods like industry meetings, specify what your plan for that method is. If you plan to advertise or develop a public relations campaign, specify what your efforts will be. Will you be on social media channels? Which ones, and why? Are these efforts designed to appeal to specific demographics or types of customers? Which ones, and why? Will sales be accomplished via a targeted sales team? Will management call upon relevant prospective clients or stores? Will you have an online presence?
If you have a growth strategy, outline it. If you plan expansions to other geographic areas or other types of potential customers, discuss it in this section.
See an example of a marketing and sales section here .
8. Financial Analysis
The financial analysis section is key for lenders. The financial analysis must include financial projections for three to five years out. The further out into the future forecasts run, of course, the more difficult it is to predict with certainty. One solution is to prepare a business plan with three-year forecasts, but have a five-year forecast ready if the investors want them.
Tip : If you are already in business, you should also include historical results for the past three to five years (or for as long as the business has been operating, if it’s less).
The financial projections must include:
- Income statements
- Cash flow statements
- Capital expenditure budgets
- Balance sheets
They may also include profit and loss statements, sales forecasts, and financial metrics relevant to your industry. Lenders may ask you for more granular data, such as cost of sales or cost per product (or service).
You need to provide the projections by month, quarter, and year. Potential investors want to see the financials in both the short and long term. Why? Because businesses that aren’t meeting their monthly and quarterly projections can be risky. If they are falling behind in sales or profit, for example, they can fail rapidly.
On the other hand, if sales are much greater than projected, the company can find it challenging to keep up with production and other efforts. To counterbalance the risk, lenders always want a clear picture of what’s likely to happen.
See an example of a financial analysis section here .
Need funding? We can get your dream off the ground.
8.2 break-even analysis.
A break-even analysis is the calculation and study of the margin of safety of a company, based on revenue and associated costs.
Learn how to calculate break-even analysis in Excel here .
8.3 Projected Profit and Loss
Also known as a P&L forecast, this section will cover the projection of how much money your company will bring in and how much profit you’ll make from those sales.
Tip : Most accounting software, like QuickBooks or Peachtree, can create a P&L forecast for you after you enter sales and expenses.
8.4 Cash Flow Forecast
A cash flow forecast documents your estimate of how much money will come in and out of your business within a specific amount of time (usually 12 months). The forecast includes your projected income and expenses.
Learn more about how to model your cash flow forecast here .
Tip : Looking at your past cash flow through accounting software can help you determine your future cash flow and forecast it.
8.5 Projected Balance Sheet
A projected balance sheet is also known as a “pro forma” balance sheet. It lists out account balances on a company’s assets, equity, liabilities, and other spending and income that the P&L doesn’t cover – like cash from a loan or outstanding customer invoices.
Learn more about how to create a pro forma balance sheet here .
Learn how to create a company balance sheet and download a template here .
8.6 Business Ratios
Ratios in a business plan are used to assess and analyze the performance of a business. In this case, projected ratios are another good look for banks to understand your business’s potential and also serve as a goalpost for your planning.
Common Business Ratios (and Their Formulas)
Net Profit Margin Formula: Net Profit After Taxes / Net Sales Gross Profit Margin Ratio Formula: Gross Profit = (Revenue – Cost of Goods Sold) / Revenue Profit Margin Ratio Formula: Profit Margin = (Revenue – Expenses) / Revenue Quick Ratio (also known as “The Acid Test”) Formula: Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities OR Formula: Quick Ratio = (Current Assets – Inventory) / Current Liabilities ROI (Return on Investment) Ratio Formula: ROI Ratio = (Gain from Investment – Cost of Investment) / Cost of Investment Current Ratio Formula: Current Ratio = Current Assets / Current Liabilities Common Size Formula: Common Size Ratio = Line Item / Total
9. Funding Request
Now it’s time for your funding request! You need to clearly itemize why you need business financing, what amount you’re requesting (both current and prospective for the next five years), and what you will use the amounts for.
Tip : Describe how funding will contribute to the overall success of your company (and its strategic plan). Will it allow strategic R&D? Provide funds to acquire a smaller competitor? Create an opportunity for media buys and other marketing?
Here’s one way you can structure your funding request:
- Your current funding needs.
- Any future funding requirements over the next five years.
- How you intend to use the funds you receive.
- Any strategic future financial plans.
Appropriate appendix materials include:
- Principals’ resumes
- Tax returns
- Relevant real estate documents
- Documents detailing the legal structure of your business
- Processing flowchart
- Letters of intent to purchase from buyers
- Advertisement and marketing materials
- Relevant training certificates
- Sales forecast
- Other financial forecasts
- Personnel plan
- Profit and loss statement
- Balance sheet
The Easier Way to Get a Business Loan
Navigating the business loan process on your own can be overwhelming. That’s why many current and aspiring small business owners work with a company like Guidant Financial that can guide you through the process.
Here’s what working with a consulting company like Guidant can offer:
- Simplified Application Process. Rather than wasting your time filling out multiple loan applications for every bank, we shop a single application to multiple lenders.
- Better Loan Terms: The ability to apply to several lenders at once often means receiving several loan offers, so you’ll have more choices when selecting your terms and conditions.
- Faster Approvals: We have established relationships with a vast network of lenders, which means your application goes directly to banks who are most likely to approve your loan.
Guidant supports you throughout the entire loan application process. And with our comprehensive loan package analysis, we ensure you’re matched with the lenders who provide the best loan rates and the greatest chances of approval. Call us at 888.472.4455 or pre-qualify in under five minutes .
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Table of Contents
What does a loan business plan include?
What lenders look for in a business plan, business plan for loan examples, resources for writing a business plan.
A comprehensive and well-written business plan can be used to persuade lenders that your business is worth investing in and hopefully, improve your chances of getting approved for a small-business loan . Many lenders will ask that you include a business plan along with other documents as part of your loan application.
When writing a business plan for a loan, you’ll want to highlight your abilities, justify your need for capital and prove your ability to repay the debt.
Here’s everything you need to know to get started.
How Much Do You Need?
A successful business plan for a loan describes your financial goals and how you’ll achieve them. Although business plan components can vary from company to company, there are a few sections that are typically included in most plans.
These sections will help provide lenders with an overview of your business and explain why they should approve you for a loan.
The executive summary is used to spark interest in your business. It may include high-level information about you, your products and services, your management team, employees, business location and financial details. Your mission statement can be added here as well.
To help build a lender’s confidence in your business, you can also include a concise overview of your growth plans in this section.
The company overview is an area to describe the strengths of your business. If you didn’t explain what problems your business will solve in the executive summary, do it here.
Highlight any experts on your team and what gives you a competitive advantage. You can also include specific details about your business such as when it was founded, your business entity type and history.
Products and services
Use this section to demonstrate the need for what you’re offering. Describe your products and services and explain how customers will benefit from having them.
Detail any equipment or materials that you need to provide your goods and services — this may be particularly helpful if you’re looking for equipment or inventory financing . You’ll also want to disclose any patents or copyrights in this section.
Here you can demonstrate that you’ve done your homework and showcase your understanding of your industry, current outlook, trends, target market and competitors.
You can add details about your target market that include where you’ll find customers, ways you plan to market to them and how your products and services will be delivered to them.
» MORE: How to write a market analysis for a business plan
Marketing and sales plan
Your marketing and sales plan provides details on how you intend to attract your customers and build a client base. You can also explain the steps involved in the sale and delivery of your product or service.
At a high level, this section should identify your sales goals and how you plan to achieve them — showing a lender how you’re going to make money to repay potential debt.
The operational plan section covers the physical requirements of operating your business on a day-to-day basis. Depending on your type of business, this may include location, facility requirements, equipment, vehicles, inventory needs and supplies. Production goals, timelines, quality control and customer service details may also be included.
This section illustrates how your business will be organized. You can list the management team, owners, board of directors and consultants with details about their experience and the role they will play at your company. This is also a good place to include an organizational chart .
From this section, a lender should understand why you and your team are qualified to run a business and why they should feel confident lending you money — even if you’re a startup.
In this section, you’ll explain the amount of money you’re requesting from the lender and why you need it. You’ll describe how the funds will be used and how you intend to repay the loan.
You may also discuss any funding requirements you anticipate over the next five years and your strategic financial plans for the future.
» Need help writing? Learn about the best business plan software .
When you’re writing a business plan for a loan, this is one of the most important sections. The goal is to use your financial statements to prove to a lender that your business is stable and will be able to repay any potential debt.
In this section, you’ll want to include three to five years of income statements, cash flow statements and balance sheets. It can also be helpful to include an expense analysis, break-even analysis, capital expenditure budgets, projected income statements and projected cash flow statements. If you have collateral that you could put up to secure a loan, you should list it in this section as well.
If you’re a startup that doesn’t have much historical data to provide, you’ll want to include estimated costs, revenue and any other future projections you may have. Graphs and charts can be useful visual aids here.
In general, the more data you can use to show a lender your financial security, the better.
Finally, if necessary, supporting information and documents can be added in an appendix section. This may include credit histories, resumes, letters of reference, product pictures, licenses, permits, contracts and other legal documents.
Lenders will typically evaluate your loan application based on the five C’s — or characteristics — of credit : character, capacity, capital, conditions and collateral. Although your business plan won't contain everything a lender needs to complete its assessment, the document can highlight your strengths in each of these areas.
A lender will assess your character by reviewing your education, business experience and credit history. This assessment may also be extended to board members and your management team. Highlights of your strengths can be worked into the following sections of your business plan:
Capacity centers on your ability to repay the loan. Lenders will be looking at the revenue you plan to generate, your expenses, cash flow and your loan payment plan. This information can be included in the following sections:
Capital is the amount of money you have invested in your business. Lenders can use it to judge your financial commitment to the business. You can use any of the following sections to highlight your financial commitment:
Conditions refers to the purpose and market for your products and services. Lenders will be looking for information such as product demand, competition and industry trends. Information for this can be included in the following sections:
Products and services.
Marketing and sales plan.
Collateral is an asset pledged to a lender to guarantee the repayment of a loan. This can be equipment, inventory, vehicles or something else of value. Use the following sections to include information on assets:
» MORE: How to get a business loan
Writing a business plan for a loan application can be intimidating, especially when you’re just getting started. It may be helpful to use a business plan template or refer to an existing sample as you’re going through the draft process.
Here are a few examples that you may find useful:
Business Plan Outline — Colorado Small Business Development Center
Business Plan Template — Iowa Small Business Development Center
Writing a Business Plan — Maine Small Business Development Center
Business Plan Workbook — Capital One
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U.S. Small Business Administration. The SBA offers a free self-paced course on writing a business plan. The course includes several videos, objectives for you to accomplish, as well as worksheets you can complete.
SCORE. SCORE, a nonprofit organization and resource partner of the SBA, offers free assistance that includes a step-by-step downloadable template to help startups create a business plan, and mentors who can review and refine your plan virtually or in person.
Small Business Development Centers. Similarly, your local SBDC can provide assistance with business planning and finding access to capital. These organizations also have virtual and in-person training courses, as well as opportunities to consult with business experts.
Business plan software. Although many business plan software platforms require a subscription, these tools can be useful if you want a templated approach that can break the process down for you step-by-step. Many of these services include a range of examples and templates, instruction videos and guides, and financial dashboards, among other features. You may also be able to use a free trial before committing to one of these software options.
A loan business plan outlines your business’s objectives, products or services, funding needs and finances. The goal of this document is to convince lenders that they should approve you for a business loan.
Not all lenders will require a business plan, but you’ll likely need one for bank and SBA loans. Even if it isn’t required, however, a lean business plan can be used to bolster your loan application.
Lenders ask for a business plan because they want to know that your business is and will continue to be financially stable. They want to know how you make money, spend money and plan to achieve your financial goals. All of this information allows them to assess whether you’ll be able to repay a loan and decide if they should approve your application.
On a similar note...
How to write a business plan for a bank loan?
Whether you need a bank loan to start up a new business, grow an existing business or anything in between, writing a business plan can help make it a reality!
It involves outlining your goals and explaining how you plan to achieve them. A professional business plan is crucial to obtaining a bank loan and planning your outlook for both the short and long-term future.
Yet, most entrepreneurs view writing a business plan as a daunting task. But, it doesn't have to be!
In this guide, we'll cover what writing a business plan for a bank loan entails, why you need to write one, what tool you should use and the content that should be included.
Ready? Let's get started!
In this guide:
What is a business plan?
Do i need a business plan to secure a business loan, do banks actually look at business plans or is it just a box-ticking exercise, what do banks look for in a business plans, what tool should i use to write a business plan for a bank loan, what does a business plan for a bank loan look like, how long does a business plan for a bank loan need to be, key financial metrics and ratios banks look at when deciding on a loan application, examples and templates of business plans for a bank loan.
A business plan is a written document that contains two key parts:
- A written presentation that outlines what the company does, its medium term objectives and explains how it plans to achieve them.
- A financial plan that includes a cash flow statement, profit and loss statement and a balance sheet.
To get a business loan approved you need to convince the lender that your business will be able to repay it.
Regulated lenders also have legal obligations to demonstrate to their regulator that they are lending responsibly, meaning that your business can afford the loan.
Therefore, whilst a business plan is not strickly necessary to obtain a business loan, most banks will likely ask you to provide one, as it provides an objective way of assessing your borrowing capacity and to demonstrate affordability.
Imagine the following situation, a business borrows £100k from a regulated bank, and then goes bust. The regulator decides to investigate the bank. The bank can then provide the business plan to help demonstrate that the loan was affordable and that it behaved responsibly.
Most banks will look at your business plan when you hand in a loan application. How in-depth the bank looks at it though will depend on whether you are borrowing against assets or cash flow.
Borrowing against assets involves lending money to businesses whilst using their assets as collateral. These loans are also called secured loans.
Secured loans help reduce risks for lenders, they can seize the collateral if the borrower is unable to repay and sell the asset to recoup part of their losses. That's what happens with mortgages, for example.
Banks usually have pre-set loan-to-value ratios (LTVs) for the most common types of assets (property, equipment, vehicles etc.).
A loan-to-value assessment simply compares the appraised value of your asset against the value of the business loan.
For example, if you're buying a car worth £10,000 and the LTV ratio used by the bank is 70%, they can lend you up to £7,000 and will take the car as collateral.
The bank still needs to assess that you can afford the £7,000 business loan. They might ask you for a business plan, but might decide not to do so given that it's a small amount. They might simply look at your trading history or ask for a personal guarantee from the business owner instead.
BDC Bank - a Canadian bank - says that "financial institutions don’t use the same loan-to-value ratio for all asset types because of different asset liquidity levels".
In layman terms, liquidity means how easy it is to sale the asset. If it's a delivery van, it's very easy as there is an established secondhand market (high liquidity), if it's a chemical plant it might take up to a year (low liquidity).
In a nutshell, the easier it is to sale the asset (if it needs to be seized), the higher the loan amount.
According to BDC Bank , likely LTV ratios for common asset types are:
- Marketable securities (high in liquidity): 90%
- Accounts receivables: 75%
- Commercial and industrial real estate: 65% to 100%
- Inventory (low in liquidity): 50%.
Capital Source Group - an alternate lender - says that some banks require a down payment of up to 20% of the market value of the equipment, referring to firms seeking finance to purchase key equipment and mention an indicative baseline LTV ratio of 50%.
As we've seen above, asset-based lending is relatively straighforward, and lower risk as the asset is used as collateral. The decision making is more complicated if your business borrows against cash flows (for e.g. working capital purposes).
Cash-flow-based borrowing involves lending money to businesses based on their predicted cash flows. The bank has to assess how much you can borrow based on historical and projected financials.
Doing so requires to have a clear understanding of the future cash flows of the business, which can only be obtained through a business plan.
Most banks ask for business plans when you apply for a business loan because they need it to understand:
Who the borrower is
Whether or not there is collateral.
- If there is a trading history that supports the cash flow forecast
- What borrowing capacity and affordability can be inferred from the forecast
Firstly, the bank has to understand what entity or person it is lending money to. For example, if you take over a business, you could buy either its assets or shares.
If you were to buy their assets, a new company would likely be created but if you were to purchase their shares, you could do it directly or via a holding company (likelier option).
Depending on which option you choose, the bank has to decide whether it's lending to your current business, yourself or the holding company. The answer to this question then determines the level of risk the bank is undertaking.
Next, the bank has to decide whether or not there is sufficient collateral. Can it secure the loan against the business assets or does it need to request a personal warranty from the business owner(s)?
It will assess:
- Whether or not your current business has any assets that can be used as collateral
- If you, the business owner, have a house or cash in the bank or can offer a credible personal guarantee
- Whether or not the holding company will provide its shares as collateral or if it needs to ask its shareholders for a personal guarantee (or both)
Does the trading history supports the cash flow forecast
The bank will want to know if there is any trading history to support your cash flow forecast.
If there isn't, it becomes harder to judge and riskier from a lender's viewpoint.
Borrowing capacity and affordability: total indebtedness and credit metrics
Lastly, the bank will estimate your business credit score taking into consideration: whether or not you have any outstanding debt, what your past repayments were like, and credit metrics such as fixed charge coverage ratio, net debt-to-equity ratio, and interest coverage ratio (we'll detail these 3 ratios later in this guide).
Create your business plan online!
Get a professional business plan to support your application for bank loan.
Writing a business plan can be both tedious and difficult if you start from scratch. Luckily for you, online business plan software can help you write a professional plan in no time.
There are several advantages to using specialised software like The Business Plan Shop:
- You are guided through the writing process by detailed instructions and examples for each part of the plan
- You can be inspired by already written business plan templates
- You can easily make your financial forecast by letting the software take care of the financial calculations for you
- You get a professional document, formatted and ready to be sent to your bank
- You can easily compare your forecast against actuals from your accounting system to ensure you are on track to deliver your plan, and adjust your forecast to keep it up to date as time goes by
If you are interested in this type of solution, you can try our software for free by signing up to The Business Plan Shop today .
There are seven key sections that any business plan for a bank loan must include:
- Executive summary
- Company Overview
- Products and services
- Market analysis
- Financial projections
Let's have a look at each one in more detail.
1. Executive summary
Your executive summary should provide the bank with a quick snapshot of your business. Remember that this is the first section of your business plan that they will look at - you need to keep them interested and do not need to go into depth.
Instead, outline who you are (what type of business) and what goods or services you sell. You'll also need to give them a glimpse of your financial projections (expected revenues and profitability).
Lastly, you should explain what are your total funding requirements and how much you are seeking to borrow from the bank.
2. Company Overview
In this section, you should explain what structure your business takes up (sole trader, partnership or limited liability company). This way, the bank understands whether or not you are liable if your business defaults on its loan. If you are not they might ask you for a personal guarantee.
If you are a partnership or limited liability company, state who your partners are and what percentage of the business they own. Also, outline any skills and experience they have that make them suitable for their role.
Finally, you should state where your business(es) are located and why that particular location was chosen (for example, it could be because of the parking slots available or transport links, making it very accessible for potential customers).
3. Products and services
You should include a detailed list of the products or services that you sell. Whilst you don't have to specify every single item or service, you should aim to include all of the key ones.
For example, for a hair salon, this might be hair care, washing, stylish haircuts, combing, hair colouring, waving, and hair straightening.
4. Market analysis
The market analysis section of your business plan for a bank loan is where you bring together your local and national market research. Using charts and graphs along with text makes it easier to illustrate your points clearly.
You should also state who you plan to target and the competitors in your local market. For example, if you were a coffee shop business, you could target people seeking a takeaway coffee, those looking for a lunch or snack or people looking for a place to work.
Finally, you should state the regulation in effect in the local market and whether there are any plans to make changes in the future (by the council for example).
Your strategy section helps explain how you plan to make your business a success. Both marketing and pricing strategies feature in this section.
Explain how you've determined your prices and whether or not they differ from your competitors. Remember that this will depend on your overall pricing strategy (cost-plus pricing, competitive, price skimming, etc.).
Your marketing plan should explain how you plan to attract and retain customers. For example, you could have an attractive storefront with your logo to encourage potential customers to visit inside. You might also offer loyalty cards (for example, buy 3 burgers, get the fourth one free).
Finally, key milestones must also be outlined so that both parties are aware of what needs to be achieved within an agreed-upon timeframe along with measures taken against any foreseeable risks and mitigants related thereto.
The operations section of your business plan for a bank loan should include information about your staffing team. List any current and future recruitment plans, employee skills, experience and what roles they are going to take up.
Plus, you should state what suppliers you chose and why. For example, you might have chosen a particular supplier thanks to their eco-friendly stance or brand reputation.
7. Financial projections
Arguably the most important section in your business plan for a bank, your financial projections help the bank decide whether or not they should lend to your company.
This section includes your balance sheet, profit and loss statement and cash flow forecast. Figures from these three statements are used to compute key ratios (see the section below).
Profit and loss statement
A projected P&L statement shows how much money the company might make and how much it will grow in the future.
It helps stakeholders understand how successful the company could be.
A balance sheet shows what your business owns (assets), what it owes (liabilities), and what has been invested by the owners (equity).
Looking at a balance sheet enables investors, lenders, and business owners assess the capital structure of the business.
One key aspect of this analysis is achieved by calculating key liquidity (short-term) and solvability (long-term) ratios to understand if the company can pay its debts as they fall due.
Cash flow statement
A projected cash flow statement is a document used to plan out how much cash a your business will generate (inflows) and spend over a certain period (outflows).
This document shows the expected cash flows from the operations, investments and other financial activities.
Having this information can help you decide how much money your business needs to save for future expenses or investments, as well as anticipate potential cash shortfalls.
Like most business plans, there's no specific number of pages that yours must have. A good rule of thumb, however, is to keep it between 15 and 35 pages.
As long as you've covered all of the key sections, ranging from the executive summary to the financial projections, your business plan for a bank loan should be good to go.
Remember, quality is more important than quantity.
Get a professional business plan to support your bank loan application.
It's worth noting that ratio targets set by lenders are industry dependent.
There are usually three key financial ratios that banks calculate before lending money:
1. Fixed charged coverage ratio
This solvency ratio assesses how much headroom a business has over its upcoming debt repayments.
It is calculated by dividing the Cash flow available for debt service (or CFADS), which measures how much cash flow is available to pay off debt obligations, by the amount to be paid to service the debt (interest plus principal repayments).
It is one of the main ratios used by lenders to assess the borrowing capacity and the financial risk of a given business.
For businesses utilising bank debt, lenders usually expect the fixed charge coverage ratio to be above 2.0x, which implies that the business is expected to generate twice as much cash as is needed to service the debt, leaving a healthy buffer.
In any case, the ratio should be above 1.0x, below 1.0x the business is not generating enough cash to service its debt which puts lenders at risk.
For example, if your business records a CFADS of £500,000 and total debt service amounting to £250,000 (£50,000 of interest payments, and £200,000 of principal repayments), it will have a fixed charge coverage ratio of 2.0x.
2. Debt to EBITDA
This solvency ratio is used to assess the level of debt and borrowing capacity of the business. It compares the level of debt to the firm’s EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), used as a proxy for the operating cash flow.
For example, if your company has debt worth £20m and an EBITDA of £5M, your debt to EBITDA ratio would be £20m/£5m = 4.0x.
In simple terms, a company with a debt to EBITDA ratio of 4.0x would need at least 4 years to repay its debt. Whether or not this is too high will depend on the sector and the risk appetite of the lender.
3. Interest coverage ratio
This solvency ratio is commonly used by lenders to measure a business's ability to pay interest on its debt. It compares the firm’s EBITDA, used as a proxy for the operating cash flow, with the amount of interest expense due in a financial year.
For example, if your business has an EBITDA of £500,000 and interest expenses amounting to £50,000, it will have an interest coverage ratio of 10.0x.
The rationale behind this ratio is that, if the company was to default on its debt, lenders could potentially agree to delay the principal repayments as long as the company remains able to at least pay the interest. In that scenario, their capital would remain at risk but lenders would still be able to earn a return.
The higher the interest coverage ratio the better. Targets set by lenders are industry dependent. An interest coverage ratio higher than 4.0x is generally a good starting point.
Most of the business plan templates offered by The Business Plan Shop are examples of companies seeking bank loans and so can be used to structure your own plan.
We have templates to fit various industries including hospitality, retail, services, construction, industrials and more.
We hope that this guide has helped you to better understand how to write a business plan for a bank loan. Do not hesitate to contact us if you still have questions.
Also on The Business Plan Shop
- 5-years business plans explained
- Business plan vs budget: what's the difference?
- Business plan structure: an in-depth guide
Know someone looking to take out a bank loan for their business? Share this article with them!
Founder & CEO at The Business Plan Shop Ltd
Guillaume Le Brouster is a seasoned entrepreneur and financier.
Guillaume has been an entrepreneur for more than a decade and has first-hand experience of starting, running, and growing a successful business.
Prior to being a business owner, Guillaume worked in investment banking and private equity, where he spent most of his time creating complex financial forecasts, writing business plans, and analysing financial statements to make financing and investment decisions.
Guillaume holds a Master's Degree in Finance from ESCP Business School and a Bachelor of Science in Business & Management from Paris Dauphine University.
Published on 14 Feb 2023 , last update on 05 Jul 2023 , as per our editorial standards .
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Why Do I Need a Business Plan?
Sections of a business plan, the bottom line.
- Small Business
How to Write a Business Plan for a Loan
How to secure business financing
Matt Webber is an experienced personal finance writer, researcher, and editor. He has published widely on personal finance, marketing, and the impact of technology on contemporary arts and culture.
A business plan is a document that explains what a company’s objectives are and how it will achieve them. It contains a road map for the company from a marketing, financial, and operational standpoint. Some business plans are more detailed than others, but they are used by all types of businesses, from large, established companies to small startups.
If you are applying for a business loan , your lender may want to see your business plan. Your plan can prove that you understand your market and your business model and that you are realistic about your goals. Even if you don’t need a business plan to apply for a loan, writing one can improve your chances of securing finance.
- Many lenders will require you to write a business plan to support your loan application.
- Though every business plan is different, there are a number of sections that appear in every business plan.
- A good business plan will define your company’s strategic priorities for the coming years and explain how you will try to achieve growth.
- Lenders will assess your plan against the “five Cs”: character, capacity, capital, conditions, and collateral.
There are many reasons why all businesses should have a business plan . A business plan can improve the way that your company operates, but a well-written plan is also invaluable for attracting investment.
On an operational level, a well-written business plan has several advantages. A good plan will explain how a company is going to develop over time and will lay out the risks and contingencies that it may encounter along the way.
A business plan can act as a valuable strategic guide, reminding executives of their long-term goals amid the chaos of day-to-day business. It also allows businesses to measure their own success—without a plan, it can be difficult to determine whether a business is moving in the right direction.
A business plan is also valuable when it comes to dealing with external organizations. Indeed, banks and venture capital firms often require a viable business plan before considering whether they’ll provide capital to new businesses.
Even if a business is well-established, lenders may want to see a solid business plan before providing financing. Lenders want to reduce their risk, so they want to see that a business has a serious and realistic plan in place to generate income and repay the loan.
Every business is different, and so is every business plan. Nevertheless, most business plans contain a number of generic sections. Common sections are: executive summary, company overview, products and services, market analysis, marketing and sales plan, operational plan, and management team. If you are applying for a loan, you should also include a funding request and financial statements.
Let’s look at each section in more detail.
The executive summary is a summary of the information in the rest of your business plan, but it’s also where you can create interest in your business.
You should include basic information about your business, including what you do, where you are based, your products, and how long you’ve been in business. You can also mention what inspired you to start your business, your key successes so far, and your growth plans.
In this section, focus on the core strengths of your business, the problem you want to solve, and how you plan to address it.
Here, you should also mention any key advantages that your business has over your competitors, whether this is operating in a new market or a unique approach to an existing one. You should also include key statistics in this section, such as your annual turnover and number of employees.
Products and Services
In this section, provide some details of what you sell. A lender doesn’t need to know all the technical details of your products but will want to see that they are desirable.
You can also include information on how you make your products, or how you provide your services. This information will be useful to a lender if you are looking for financing to grow your business.
A market analysis is a core section of your business plan. Here, you need to demonstrate that you understand the market you are operating in, and how you are different from your competitors. If you can find statistics on your market, and particularly on how it is projected to grow over the next few years, put them in this section.
Marketing and Sales Plan
Your marketing and sales plan gives details on what kind of new customers you are looking to attract, and how you are going to connect with them. This section should contain your sales goals and link these to marketing or advertising that you are planning.
If you are looking to expand into a new market, or to reach customers that you haven’t before, you should explain the risks and opportunities of doing so.
This section explains the basic requirements of running your business on a day-to-day basis. Your exact requirements will vary depending on the type of business you run, but be as specific as possible.
If you need to rent office space, for example, you should include the cost in your operational plan. You should also include the cost of staff, equipment, and any raw materials required to run your business.
The management team section is one of the most important sections in your business plan if you are applying for a loan. Your lender will want reassurance that you have a skilled, experienced, competent, and reliable senior management team in place.
Even if you have a small team, you should explain what makes each person qualified for their position. If you have a large team, you should include an organizational chart to explain how your team is structured.
If you are applying for a loan, you should add a funding request. This is where you explain how much money you are looking to borrow, and explain in detail how you are going to use it.
The most important part of the funding-request section is to explain how the loan you are asking for would improve the profitability of your business, and therefore allow you to repay your loan.
Most lenders will also ask you to provide evidence of your business finances as part of your application. Graphs and charts are often a useful addition to this section, because they allow your lender to understand your finances at a glance.
The overall goal of providing financial statements is to show that your business is profitable and stable. Include three to five years of income statements, cash flow statements, and balance sheets. It can also be useful to provide further analysis, as well as projections of how your business will grow in the coming years.
What Do Lenders Look for in a Business Plan?
Lenders want to see that your business is stable, that you understand the market you are operating in, and that you have realistic plans for growth.
Your lender will base their decision on what are known as the “five Cs.” These are:
- Character : You can stress your good character in your executive summary, company overview, and your management team section.
- Capacity : This is, essentially, your ability to repay the loan. Your lender will look at your growth plans, your funding request, and your financial statements in order to assess this.
- Capital : This is the amount of money you already have in your business. The larger and more established your business is, the more likely you are to be approved for finance, so highlight your capital throughout your business plan.
- Conditions : Conditions refer to market conditions. In your market analysis, you should be able to prove that your business is well-positioned in relation to your target market and competitors.
- Collateral : Depending on your loan, you may be asked to provide collateral , so you should provide information on the assets you own in your operational plan.
How Long Does It Take to Write a Business Plan?
The length of time it takes to write a business plan depends on your business, but you should take your time to ensure it is thorough and correct. A business plan has advantages beyond applying for a loan, providing a strategic focus for your business.
What Should You Avoid When Writing a Business Plan?
The most common mistake that business owners make when writing a business plan is to be unrealistic about their growth potential. Your lender is likely to spot overly optimistic growth projections, so try to keep it reasonable.
Should I Hire Someone to Write a Business Plan for My Business?
You can hire someone to write a business plan for your business, but it can often be better to write it yourself. You are likely to understand your business better than an external consultant.
Writing a business plan can benefit your business, whether you are applying for a loan or not. A good business plan can help you develop strategic priorities and stick to them. It describes how you are going to grow your business, which can be valuable to lenders, who will want to see that you are able to repay a loan that you are applying for.
U.S. Small Business Administration. “ Write Your Business Plan .”
U.S. Small Business Administration. “ Market Research and Competitive Analysis .”
U.S. Small Business Administration. “ Fund Your Business .”
Navy Federal Credit Union. “ The 5 Cs of Credit .”
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How To Write A Business Plan for A Bank Loan (3 Key Steps)
Wondering how to create a business plan that will wow your banker.
You're not alone.
Most entrepreneurs see writing a business plan as a gargantuan task – especially if they've never written one before.
Where do you start?
How do you calculate the financials?
How can you be sure you're not making a mistake?
And if you need a business plan for a bank loan, getting this document right is absolutely essential.
So here's what we recommend: simplify the planning process by breaking the work up into manageable, bite–sized steps. That way, you can focus on one section at a time to make sure it's accurate.
Here's a quick overview of the step–by–step process we guide entrepreneurs through when they sign up for LivePlan.
Step 1: Outline The Opportunity
This is the core of your business plan. It should give loan officers a clear understanding of:
- What problem you're solving
- How your product or service fits into the current market
- What sets your business apart from the competition
There are three key parts to this step:
The Problem & Solution
Detail exactly what problem you are solving for your customers. How do their lives improve after you solve that “pain point” for them?
We recommend actually going out and chatting with your target audience first. That way, you can validate that you're solving a real problem for your potential customers.
Be sure to describe your solution in vivid detail. For example, if the problem is that parking downtown is expensive and hard to find, your solution might be a bike rental service with designated pickup and dropoff locations.
Who exactly are you selling to? And roughly how many of them are there?
This is crucial information for determining whether or not your business will succeed long–term. Never assume that your target market is “everyone.”
For example, it would be easy for a barber shop to target everyone who needs a haircut. But most likely, it will need to focus on a specific market segment to reach its full business potential. This might include catering to children and families, seniors or business professionals.
Who are your direct competitors? These are companies that provide similar solutions that aim to solve your customers' pain points.
Then outline what your competitive advantages are. Why should your target market choose you over the other products or services available?
Think you don't have any competition? Think again. Your customers are likely turning to an indirect competitor that is solving their problem with a different type of solution.
For example: A taco stand might compete directly with another taco stand, but indirectly with a nearby hot dog vendor.
Boost your chances of securing a loan
See how LivePlan can help you write a fundable business plan
Step 2: Show how you'll execute
This is where the action happens! Here you'll get into the details of how you'll take advantage of the opportunity you outlined in the previous section. This part demonstrates to banks that you have a strong plan to achieve success.
The three main components of this step include:
Marketing & Sales Plan
There can be a lot of moving parts to this one, depending on your business model.
But most importantly, you'll need to fully explain how you plan to reach your target market and convert those people into customers. A few example of what should be included:
- Positioning strategy. What makes your business both unique and highly desirable to your target market?
- Marketing activities. Will you advertise with billboards, online ads or something else entirely?
- Pricing. What you charge must reflect consumer demand. There are a few models to choose from, including ‘cost–plus pricing’ and ‘value pricing.’
This is the nuts and bolts of your business. It's especially important for brick–and–mortar companies that operate a storefront or have a warehouse.
You may want to explain why your location is important or detail how much space you have available. Plan to work at home? You can also cover your office space and any plans to move outside your house.
Any specialized software or equipment and tools should also be covered here.
Milestones & Metrics
Lenders and investors want to be confident that you know how to turn your business plans into financial success. That's where your milestones come in.
These are planned goals that help you progress your company. For example, if you're launching a new product your milestones may include completing prototypes and figuring out manufacturing.
Metrics are how you will gauge the success of your business. Do you want to generate a certain level of sales? Or keep costs at a certain level? Figuring out which metrics are most important and then tracking them is essential for growth.
Step 3: Detail your financial plan
This is the most crucial – and intimidating – part of any business plan for a bank loan. Your prospective lender will look especially close at this section to determine how likely your business is to succeed.
But the financial section doesn't have to be overwhelming, especially if you break the work into smaller pieces. Here are 3 items that your plan must have:
Simply put, this is your projections for your business finances. It gives you (and the bank) an idea of how much profit your company stands to make. Just a few items you'll need to include:
- Revenue. List all your products, services and any other ways your business will generate income.
- Direct costs. Or in other words, what are the costs to make what you sell?
- Personnel. Salaries and expenses related to what you pay yourself, employees and any contactors.
- Expenses. Things like rent, utilities, marketing costs and any other regular expenses.
Exactly how will you use any investments, loans or other financing to grow your business? This might include paying for capital expenses like equipment or hiring personnel.
Also detail where all your financing is coming from. Lines of credit, loans or personal savings should be listed here.
Bankers will be giving this section a lot of attention. Here's what you'll need:
- Profit & Loss. This statement pulls in numbers from your sales forecast and other elements to show whether you're making or losing money.
- Projected Balance Sheet. This is likely the first thing a loan officer will look at: it covers your liability, capital and assets. It provides an overview of how financially sound your business is.
- Projected Cash Flow. Essentially, this statement keeps track of how much money you have in the bank at any given point. Loan officers are likely to expect realistic monthly cash flow for the next 12 months.
Don't forget the Executive Summary
The Executive Summary is the first section of your business plan, but we recommend you tackle it last.
It's basically an introduction to your company, summarizing the main points of your plan. Keep it to just one or two pages and be as clear and concise as possible.
Think of it as a quick read designed to get the lender excited about your business.
If you need help writing your plan
Not everyone feels confident writing a business plan themselves, especially if it's needed to secure a bank loan.
And although you don't need an MBA to write one, getting your business plan right often does require quite a bit of work. So if you need help writing your plan, here are two options to consider:
- Hire a professional business plan writer to do it for you. This is typically the most expensive route, but worth it if you're pursuing $100,000 or more in capital.
- Sign up for LivePlan. It's business planning software that walks you through a step–by–step process for writing any type of plan. It's an affordable option that also gives you an easy way to track your actuals against your business plan, so you can get the insights you need to grow faster.
LivePlan makes it easy to write a winning business plan
No risk – includes our 35-day money back guarantee.