How to Write a Business Plan for a Loan

You will need to create a business plan before applying for a loan. Your business plan for your loan is perhaps the most important loan document you submit. It gives the lender the information needed to assess whether your business will be profitable, and this tells the lender if you will have the assets to repay your debt. Because this is the goal of any good business plan, the details you include should be directly related to your ability to make a profit with the new business.

Business Purpose

The business purpose is a statement of what your business will do and why it will function in this manner. Contrary to what many new business owners may think, this section is not about showing you have a good idea. Rather, it is about showing there is a need for a particular product or service in your chosen market. The business purpose should state the reasons this need exists and the ways you can fill it. 

Cost Analysis

The next step in writing your business plan is carrying out a thoughtful cost analysis. You will need to evaluate just how much money you will truly spend in bringing your product or service to the market. This will include not just raw materials but salaries, consultant fees, applications for licenses and initial marketing costs. The lender will want to see you have completely and thoroughly assessed the situation before applying for a lump sum. You may hire a consultant to help with this analysis. The cost of carrying out this analysis is tax deductible from your business expenses in the first year of operation.

Expertise

You have shown there is a need for your service, you have told the lender what it will cost, and now you must prove you are the right person for the job. Your expertise in the industry of your choice does not have to be official or professional. For example, a mother who has home schooled three children of her own may be very qualified to open an after-school tutoring center despite not being a certified teacher. Include the most applicable experience you have and consider bringing in experts to your team if you lack expertise. 

Market Analysis

Discuss any competitors that may exist in your field. Show the lender you know they exist and you see competitive advantages that will give you a greater chance of success than your competitors. This may include an innovative profit model, a superior product or simply a better brand.

Profit Projections

Give the lender hard figures estimating how much you can reasonably earn in your first, third and fifth years of operation. Know that your business may not be profitable in its infancy but show that you can still make your loan payments during this period. The more detailed your profit analysis, the better.

Tip: Keep it Short

Your plan should be all-encompassing of the necessary items, but it should not be too long. Lenders will rarely read your plan word-for-word. They will look for highlights and key facts. Do your best to put your bottom line up front, making sure the lender sees your most important qualifications.

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