Will a Business Plan Help Me Obtain Credit?

If you are looking for credit from a vendor or service provider, probably not. But, and it's a huge but, if you're looking for a bank loan, absolutely yes.

Bankers can be nervous little critters and need to be assured of two things:

  1. Your company is stable and has enough cash flow to pay back the loan with interest.
  2. The owners of the company, that's you, has the intention to pay back the loan.

A business plan demonstrates that the company has the assets in place to secure the loan if all else fails. It also shows that you, as the owner, has the foresight to plan ahead. The business plan gives the banker just about everything they need to know about your company.

What should be included in a business plan? It's not a complicated document to put together. You'll need an executive summary which should be about two pages long and is just, as the title says, a summary of your plan. Also included should be an overview of the history of your company, its industry, the market, competitors, the products, and marketing strategies. The business plan does not have to be 300 pages long. As long as all the required information is included it can be 10 to 15 pages in addition to the financial statements.

The business plan also includes the historical financials for the last three years and projected profit and loss statements, balance sheet and cash flow projections for the next three years. If the historical statements can be put together by your account so much the better.

A banker would probably also want to see an agreed listing of your accounts receivable and payable. A list of your major accounts would be appropriate as well. Bankers use the information to learn about the company and the principals. It also gives them documentation for the loan committee to justify the loan, interest rates, and loan covenants.

Of course the bank will not use the business plan as the only information and sole documentation but will verify it with outside information, credit reports, a Business Credit Report , and if necessary, on-site inspections.

To Build your Business Credit Report, You will need to be doing business with D & B Recognized Vendors, Like Staples and Uline. The business plan also serves as a check point. Down the road the banker can look at your current performance and compare it to projected performance in the plan. If there are huge variances, an explanation will be necessary.

Appearances count very much in a business plan. Have a few trusted advisers read it for clarity; if they do not understand your plan, the banker will not either. And what is not understood does not get approved. Tripe check for spelling and grammatical errors, first impressions count. Finally, even if you use a program for forecasting, check the math, and check that any changes you've made in your forecasting model are transported through to your narrative in the plan. It's confusing to find one number for total sales in the financial statements and another one in the narrative.

Have the plan copies on good paper. You can print on both sides of the page if the paper is heavy enough in weight to stop the bleed through to the other side. It's not necessary to use a gold embossed leather binder, but do use a new binder.

We will be happy to hear your thoughts

Leave a reply