Business plans for loan applications
Writing the business plan behind a loan application
A plan written for a lender has a job the others do not: showing how the loan gets repaid. What belongs in each section, what lenders and the SBA read for, and how the financial section carries the amount you ask for.
Routing slip
A loan plan passes through more than one pair of hands
The person you meet is rarely the only reader. The plan has to make sense to each of them without you there to explain it.
Read in this order
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Loan officer
Reads it first, often with you in the room. Needs to understand the business and the request well enough to take the application forward.
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Credit analyst or underwriter
Works through the financial section line by line, checks the figures against each other and against your records, and tests whether cash flow covers the repayments.
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Approving officer or credit committee
Makes the decision, often from a summary of the file, which is why the executive summary has to stand on its own.
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The SBA, on a guaranteed loan
You still apply through a lender, which follows the SBA's requirements. Where the lender cannot approve the loan under its own authority, the file goes to the SBA as well.
The plan, tab by tab
What each section of the plan is read for
The SBA describes a traditional business plan in nine sections. In a loan application each one is read for what it says about repayment.
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Tab 01Read first
Executive summary
What the business does, how much you are asking for, what it pays for and how it will be repaid. Many readers decide here how closely to read the rest.
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Tab 02Context
Company description
Legal structure, ownership, location and history. A lender looks for how long the business has run and who stands behind it.
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Tab 03Demand
Market analysis
Who buys, how many of them there are and who else sells to them. The sales forecast later in the plan rests on this research.
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Tab 04Character
Organization and management
Who runs the business and what experience they bring to this line of work. For a lender, the owners matter more than the chart.
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Tab 05The offer
Service or product line
What you sell, what it costs you to make or deliver, and what you charge for it.
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Tab 06Revenue
Marketing and sales
How customers find you and how a first contact becomes a sale. It should explain how the revenue in the projections is reached.
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Tab 07The ask
Funding request
The amount, what each part of it buys, the term you are seeking and whether you expect to need more later.
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Tab 08Capacity
Financial projections
Forecast income, cash flow and balance sheet, with the assumptions behind them. Here the request is shown to be repayable.
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Tab 09Evidence
Appendix
Supporting records a lender may ask for: credit history, resumes, licences and permits, leases and other contracts.
What lenders read for
The five Cs of credit, and where a plan answers each
Lenders describe a credit decision in terms of five things. A plan that answers each one where a reader expects to find it is quicker to assess.
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Character
Your record of repaying debt and your experience running this kind of business.
Answered in: Management section, credit history in the appendix
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Capacity
Whether the business brings in enough cash to make the repayments on time.
Answered in: Historical statements and cash flow projections
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Capital
How much of your own money is in the business. A lender wants to see the owner sharing the risk.
Answered in: Funding request and balance sheet
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Collateral
Assets, business or personal, that secure the loan if it is not repaid.
Answered in: Funding request and appendix
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Conditions
What the loan is for, the state of your market and the wider economy around it.
Answered in: Market analysis and funding request
The financial section
How the numbers carry the request
The financial section is where the plan stops describing the business and starts showing that the loan can be repaid. Each step builds on the one before it.
- Step 1
Start from the request
State the amount and set out what it pays for: equipment, inventory, working capital, property or refinancing. Every line of the use of funds should appear again in the projections.
- Step 2
Show the history
An established business includes its past income statements, balance sheets and cash flow statements. The SBA suggests the last three to five years where they exist.
- Step 3
Project forward
Forecast income, cash flow and the balance sheet. The SBA's guidance suggests five years, with quarterly or even monthly figures for the first.
- Step 4
Write the assumptions down
Prices, volumes, costs, hiring and when customers pay. A reader can test a forecast only when the reasoning behind it is on the page.
- Step 5
Show the repayments fit
Put the loan's repayments into the cash flow forecast and show the business covers them with room to spare. Lenders call this debt service coverage.
- Step 6
Make the numbers agree
The amount requested, the use of funds and the cash flow should describe the same loan. An analyst checks each against the others.
The questions
What people ask about loan business plans
- What does a lender look for in a business plan?
- Does an SBA loan application need a business plan?
- How long should a business plan for a bank loan be?
- How do you write the funding request section?
- Which financial statements belong in a loan business plan?
- How many years of projections does a lender expect?
- How do you show that the business can repay the loan?
- Is a lean plan enough for a loan, or does it need a traditional one?
- What goes in the financial section of a startup with no history?
How it is written
Reasons in words, and no figures without a source
No typical loan amounts, interest rates or approval odds, no scores and no ranked lists. Where the SBA or a lender sets a requirement, the source is named so it can be checked.