How to Write a Business Plan to Secure a Loan Approval
You’re ready to apply for a loan! So how to write a business plan to secure a loan approval? You have a strong idea to start or grow a business, and you have an understanding of the eligibility criteria for different types of lenders.
But before you approach any lenders, you need a way to tell your story. This is where a business plan comes in. I can almost hear some people groaning through the screen already “Do I really have to write a business plan? They’re so boring!”
The answer is yes—if you want a loan to start or expand your business you need a business plan. But if your business plan is boring, then you’re not doing it right! In this post, I’ll provide some tips on how to write a business plan to secure a loan approval.
1. Start with the Fundamentals
Some business advisors suggest that a good business plan can fit on the back of a napkin. While that’s a bit extreme, you should be able to answer some essential questions about your business succinctly and confidently before you start writing the plan.
If your business idea isn’t fully fleshed out yet, it doesn’t matter how well-written your business plan is— lenders probably aren’t going to take a chance on you. Here are some questions you should be able to answer:
- What problem are you solving?
- Who is this a problem for, and who are your most important (target) customers?
- How do you know your customers will value what you are offering? Have you done the primary or secondary market research to back up your assumptions? Have you done a trial run or pilot to show proof of concept?
- What makes you different from your competitors? Why will your customers choose you instead?
- How will you deliver your service/product (operating model)? Why is this the right approach?
- Why are you the right person to solve this problem? Who is available to help you fill your gaps? (Advisors, staff, partners, etc.)
- What do you need to get started with your project (people, equipment, space, etc.), and how much is that going to cost you?
- What is your Action Plan to execute your project?
Remember as you’re answering the questions that your objective is to demonstrate to a lender that your business will be successful, and, by extension, that it will create enough profit to pay off the debt you are applying for. But it’s not enough to just tell the reader that you will succeed—you need to show them you will succeed by showing your research and work to date.
Side note: Another good tool in the early stages of business planning is called Business Model Canvas. This is a one-page tool to help you dig into the fundamentals of your business.
2. Draft Your Business Plan with the Lender in Mind
Now that you understand the fundamental business case for your business, it’s time to put it into a business plan, along with all the other background information your lender will need to make a decision. As you write your business plan, keep the above questions in mind and always ask, “What additional details can I provide to support what I’ve just written?”
What format should I use?
WeBC does not require that you use any particular template, but we do suggest you look at our guide that digs into what we look for in terms of content. There are many good templates available, such as through Small Business BC or Futurpreneur.
What information should I include?
I won’t go into detail about each business plan section (there are many other resources available for this), but here are a few essential components to include to make life easier for your lender.
- Provide a timeline: If you’re an existing business, when did you first start selling your product? When did you introduce new products? Move into a new space? Bring on employees? Reach profitability? If you’re a new business, what is your launch timeline? Your lender is going to ask these questions, so why not put it in your plan?
- When it comes to marketing plans, more is more, but ditch the fluff: Your lender wants to know that your business will make enough profit to repay the debt, and one of the ways they will investigate is by looking at your marketing plan. This is one place in your plan where you don’t want to skimp on the details. For example, If you say you’re going to advertise on social media, what platforms are you going to use? What is your budget? Posting frequency? How will you monitor results? Also, who is your target customer? You might want to think about creating customer personas to bring your (fake, but realistic) clients to life.
- Dig into risk: It’s a sad fact that many businesses do not survive their first few years. And the last few years have reminded us of the impact that larger systemic issues can have on small businesses. Take the time to really frame out the risks that your business might face, and how you will manage those risks. Try to be realistic about it—a common risk is that you won’t have as many customers as you’d hoped, or that expenses will be higher than anticipated. How will you handle that, really? Play through the scenarios in your head and be realistic about how you would respond.
- Know what you are asking for: When you’re applying for a loan, your lender will want to know how much money you need in total, and what all the proposed sources are (including your own personal investment, grants, and/or funds from other lenders). If you don’t know exactly how much you need yet, your cash flow projection should help you figure that out.
To SWOT or not to SWOT?
Many business planning templates suggest including a SWOT analysis. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. A SWOT can be a powerful tool to help you understand the internal and external factors that can help or hinder your business. Unfortunately, many SWOT analyses are not very well done.
If you want to include one, think about it in terms of these questions: What are we better at than anyone else (Strengths)? What do we need to improve (Weaknesses)? What factors outside of our control could be positive for our business (Opportunities)? What factors outside our control could harm us (Threats)?
How long should it be?
The answer, of course, is: it depends! Instead of focusing on how long the plan needs to be, you really need to focus on the content. It’s a bit like Goldilocks and the three bears. You don’t want to provide so much detail that your reader gets overwhelmed, but you also need to provide enough detail to answer the reader’s questions.
I have seen beautiful and comprehensive business plans that are 8 pages long, and I have seen bloated business plans that are 50 pages long and leave me with questions at the end. Regardless of how long it is, make sure your plan is well organized. Include a Table of Contents, and make it easy for the reader to find the information they’re looking for.
Can I pay someone to write my business plan?
There are many people out there who are happy to take your money and write a business plan for you. They may even do a good job! But why not write it yourself? It does not need to be written in perfect prose. It does not need to have beautiful charts and graphs if that’s not your strength. What it does need to do is tell the story of your business and why your business is viable. No one is going to do a better job of that than you are.
If you feel stuck, try to start writing it as if you are talking to someone—don’t worry about using ‘businessy’ language. Just tell your story. Once your draft is ready, if you want a second opinion there are paid business plan review services.
Remember to align with your Cash Flow Projection
A Cash Flow Projection is an essential companion to your business plan, so you need to make sure they match up. If your business plan says you need $100,000 in start-up funds, this should match up with your cash flow projection. Likewise, if you provide a breakdown of your estimated margins and product costs in the business plan, this should match up with the Cost of Goods Sold in your cash flow projection.
3. Keep the Business Plan Alive
Lastly, many people write a business plan and keep it on the shelf once it has fulfilled its purpose. This is understandable, but I strongly suggest you try to keep your plan alive, even if it’s a shorter version than what a lender would look for.
Your business plan is a chance to reflect on your core strengths, main risks, and all of the assumptions that go along with planning for your business’ future. An up-to-date plan will also come in handy as you grow your business and need to communicate with lenders and investors.
Now, Get Writing!
I hope this gives you a better handle on how to write a business plan to secure a loan approval. My best advice is, just get started! If you’re feeling stuck, you can always get in touch with us for a complimentary Business Advising Session.