How to Build a Lender-Ready Business Plan

A business plan prepared for financing has a different purpose from a general company overview or investor presentation. Its job is to help a lender understand the business, evaluate the request and determine whether projected cash flow can support repayment.

No business plan can guarantee loan approval. The decision also depends on credit history, collateral, borrower equity, industry conditions and the lender’s underwriting standards. A well-prepared plan does, however, make the opportunity easier to evaluate.

Begin With a Specific Financing Request

State how much financing is being requested, how the funds will be used and what other funding sources are part of the project.

The sources and uses of funds should be complete and consistent with the financial projections. Acquisition costs, construction, equipment, working capital, professional fees and financing costs should not appear as disconnected numbers in different parts of the plan.

Explain How the Business Makes Money

Lenders need a practical explanation of the company’s products or services, customers, pricing and sales process.

Avoid relying on broad claims about a large or growing industry. A large market does not automatically create demand for a particular business. The plan should identify the target customer, explain why that customer would buy and describe how the company will reach them.

Existing contracts, purchase orders, historical sales and customer relationships can provide useful support. For a new business, the assumptions should be supported by credible market research and a realistic operating plan.

Show That Management Can Execute

The management section should concentrate on relevant experience rather than lengthy biographies.

Discuss prior industry experience, operational responsibilities, financial management and other qualifications directly related to the project. If certain skills will be provided by employees, advisers or outside professionals, explain those roles.

Build Projections From Clear Assumptions

Revenue should be tied to measurable drivers such as customers, units sold, occupancy, pricing, production capacity or billable hours. Expenses should include the staffing, materials, facilities and other costs required to generate that revenue.

The projections should ordinarily include income statements, balance sheets and cash-flow statements, along with a debt schedule and debt-service coverage calculations. Startup and expansion projects may also require monthly projections during construction and ramp-up.

Optimistic numbers are not necessarily persuasive. Assumptions that can be explained and tested usually provide a stronger basis for review.

Address the Important Risks

Every business faces risks. Ignoring them does not make the financing request stronger.

Discuss the risks most relevant to the project, such as customer concentration, seasonality, construction delays, labor availability or dependence on a small number of suppliers. More importantly, explain the practical measures available to manage those risks.

Check the Entire Package for Consistency

Before submission, compare the narrative, financial projections and supporting documents. The loan amount, project cost, ownership structure, opening date, staffing plan and revenue assumptions should agree throughout the package.

A lender-ready business plan does not need exaggerated claims or absolute predictions. It needs a credible business case, supportable assumptions and a clear explanation of how the proposed loan will be repaid.

Preparing for an SBA or other business-financing application? Contact DirectPlan Consulting to discuss your business plan.