Building on the step by step loan application process last week, this week’s topic focuses on crafting the best business plan to help you secure the loan your company needs.

A solid business plan serves as key piece of information when you are seeking financing from banks or investors. A strong business plan doesn’t just outline your business goals. It should clearly highlight your strategic vision, market understanding, operational efficiency, and financial viability.

Every banker needs to prepare a loan application to present for approval. By sending your business plan to the banker for their reference, it will expedite your loan process, and most importantly, it allows you to sell your company in your own words.

Whether you're a startup entrepreneur or an established business owner looking to expand, this guide will teach you how to create business plan that resonates with lenders, investors, and stakeholders.

There’s lots of detail loaded in this issue so let’s get right in.

Key sections of a business plan:

Executive Summary:

Your executive summary provides an overview of your project and a description of your current business or business idea. This section should grab the banker’s attention and provide an overview of what's to come. Answer the questions in each subsection below:

1. Project/Opportunity Objectives:
   • What do you want to capture with the project or opportunity?
   • What are the timelines and revenue targets for this project?
2. Business Description:
   • What does your business do?
   • What solutions does your business provide?
   • How long have you been in business?
   • Where is it located?
   • What has changed since you first started the business?
3. Products and Services:
   • What products or services does the business sell?
   • What proportion of revenue does each product/service represent?
4. Financing Requirement:
   • How much financing do you need for the project/opportunity?
   • How will you use the funds? Be specific.
5. Key People:
   • Who are the key individuals running the business?
   • List out their experience and responsibilities within the company.
6. Risk Assessment and Contingency Plan:
   • What are the key risks of the company?
   • What are the company’s weaknesses or threats that can ruin your project?
   • How will you monitor, measure, and respond to these risks?

Business Overview:

Next, the business overview is a concise description of what you do and who you serve. This section of your business plan also provides a comprehensive overview of your company's mission, vision, products or services, target market, competitive advantages, and organizational structure. This is where your banker will get a deep understanding of your business.

1. Mission and Vision Statement:
   • Mission statement: state your company’s purpose and reason for existence.
   • Vision statement: outline your long-term goals, aspirations, and desired impact on the market or community.
2. Company History and Ownership Structure:
   • Provide background information on your company's history, including its founding date, milestones, achievements, and growth trajectory.
   • Describe the ownership structure of your business, including the names and roles of key stakeholders, partners, and shareholders.
3. Products or Services Offered:
   • Describe in detail the products or services your business offers. Highlight their unique features, benefits, and value proposition to customers.
   • Explain how your offerings address market needs, solve customer problems, or fulfill specific demands in your industry.
4. Industry Overview and Trends:
   • Identify and define your target market, including its size, demographics (age, gender, income level), psychographics (lifestyle, preferences, behavior), and geographic location.
   • Explain what is happening in your industry or the market where you’re selling. Have there been changes in the demand for the product or service?
   • Is your product or service at risk of being obsolete? Conduct market research to understand your target audience's needs, preferences, and buying behaviors, and tailor your offerings accordingly.
5. Competitive Advantages:
   • Analyze your competitive landscape and identify your direct competitors in your industry or market segment.
   • Highlight your competitive advantages, such as unique selling points, proprietary technology, cost-effective production processes, or exceptional customer service.
   • How does your business differentiate itself from competitors and why should customers choose your products or services over alternatives?

Sales and Marketing:

This section breaks down who your customers and suppliers are. It tells the lender where the bulk of your income and expenses are going. This section also outlines your marketing and sales tactics for attracting and retaining customers, how you maintain supplier relationships, and how you price and distribute your product or service.

1. Customers
   • List out your top 5 customers, their sales volume, product/service sold, and trade terms.
   • How diversified is your customer base? Is your business subject to concentration risk? If so, how will this be mitigated?
2. Suppliers
   • List out your key suppliers, the purchasing volume, product/service purchased, and trade terms.
   • How diversified is your supplier base? Are you dependent on a few suppliers to run the business? If so, how will this reliance be mitigated?
3. Advertising and Promotion
   • What strategy do you use to reach and sell to customers?
   • Do you rely on any technology or special channels to support your advertising?
4. Pricing and Distribution
   • How do you determine the pricing for your products or services?
   • How are your products or services delivered to the customer?
   • Are there any external factors that may impact your ability to distribute to customers?
5. Policies and Warranties
   • Does your business provide any product or service guarantee or warranty?

Operating Plan:

The operating plan details how your business operates on a day-to-day basis. Here, you will address any operational requirements, challenges or risks and propose solutions.

1. Business Location
   • Make a list of all your business’s locations (i.e. stores, offices, production facilities) with a short description for each location.
   • How does each location contribute to the company’s operations?
   • Do you own or rent your property? What are the terms of the mortgage/lease?
2. Equipment
   • Does your business rely on any equipment to operate?
   • Will you need to purchase new equipment or replace/upgrade existing equipment for the project?
   • Can your equipment adjust to changes in market demand?
3. Technology
   • Do you need to acquire new technology to remain competitive?
   • If so, what is the anticipated cost of this new technology? Be sure to include cost of purchasing, monitoring, and maintaining.
4. Legal and Environmental
   • Does your business require any permits or inspections to comply with legal and environmental regulations?
   • Is the business exposed to any hazardous waste compliance requirements?
   • Are there any existing/new regional, national, and international regulations/laws that can affect your business?

People:

Here is an overview of the key people within your business that you rely on to run your business successfully. This section is important because a company is only as good as its people. Lenders need to feel a sense of comfort and trust in the key management/staff to support the loan request.

1. Management Team
   • Include the name, title, short bio, and responsibilities of the management team members.
2. Advisors
   • Does the company rely on any advisors (i.e. lawyers, accountants, brokers, consultants, and etc.) that support the business on a regular basis?
3. Key Employees
   • List out the key non-managerial employees who are integral to the business and their roles.
     • These individuals would impact the company if they were absent.

Action Plan:

This section will explains how the financing request will be used to fulfill the project/goals, bringing the business plan to life.

1. Funding Required
   • List out the details of the loan requested to fund the project/opportunity. Include details such as the size of the loan, type of loan, term, amortization, and expected interest rate.
   • How much financing will you provide?
   • How will the funds be used specifically? Be specific.
2. Action Plan
   • What is the goal of the project/opportunity?
   • What are the key milestone/metrics involved for monitoring?
   • What action will be taken once funding is provided?
3. Risk Management
   • Are there any internal or external events that can impact your timetable? If so, how can this be mitigated?
   • Does the management team have prior experience in completing the project (or similar)?
   • What can affect the cash flow of the project?
   • How will you monitor and mitigate these risks?
   • Do you have any alternative plans?

Financial Review:

The financial review section can be seen as the soul of the business plan. If the numbers don’t line up, the deal won’t get approved. The goal here is to demonstrate that the company has the capability of supporting and repaying the requested loan.

1. Historical Financial Performance
   • Provide a summary of past financial performance.
   • Provide context for changes and trends within the line items of the income statement, balance sheet, and cash flow statement.
2. Financial Projections
   • Provide realistic financial projections, including income statements, balance sheets, and cash flow forecasts.
   • Illustrate the impact of the newly funded project in achieving your business goals, generate revenue, and profitability.
   • Complete an analysis of the company’s ability to repay the loans.
   • Complete an analysis on financial covenants to ensure the financial projections will remain compliant with the typical financial covenants related to the loan.

Investment Thesis:

This section wraps up the business plan. Finish off by providing 5 strong reasons why the bank should approve the requested loan.

Side note:

1. Remember to tailor the business plan to your audience – in this case, the bank or lender reviewing your loan application
2. Write simply and concisely. Consider using bullet points instead of paragraphs.
3. It is best to avoid repetition, if possible.
4. Include any additional supporting documents, such as market research data, or legal documents, to strengthen your case.

A strong business plan is a fundamental piece to your loan application process to secure the financing you need. So, take the time to develop a comprehensive business plan that showcases all of your company’s key attributes with strong justification for the lender to support. With a well-crafted business plan in hand, you'll be one step closer to securing the funding you need to take your business to the next level.

Go and take this business plan blueprint work for you. If you need any help along the way, let me know anytime.

That's it for this week. Thank you for reading Financing Journey. See you next Saturday.

If you’ve enjoyed this issue, don’t forget to subscribe here for weekly tips delivered straight to your inbox.

If you think this would be helpful to anyone you know, please share this newsletter and connect with me on X and LinkedIn for daily financing tips.

Have a topic you'd like me to cover? Email me at hello@lawrencefan.com.