What Do Bankers Look for in a Business Plan?

Banks are generally more cautious when supplying money to prospective businesses. They are more likely to grant a loan for a well-known business rather than one just starting.
However, organizations like the Small Business Association (SBA) collaborate with banks so small business owners can obtain business loans from them.
Before going to a bank with a loan request, you need to have the essential documents; this includes an effective business plan. You also should have your current financial statements, estimates for your business (this will typically be in the business plan), and a repayment arrangement with collateral.

Think like a lender

Look at obtaining a loan from the lender's point of view, and what he or she will be looking for in your plan. The lender will need to know the following:
How your business will run and why you think you will earn profit; how you will use the money; how you intend to pay the loan back and the time frame. They will also want to know that you personally will take monetary risk in your business, that you're dependable and can run your business; and they want to know additional individuals included in management or operations.

Experience

Bankers prefer someone with experience. They are more attracted to someone who has a business background. This can be through previous business ownership or management skills as an employee. You need to be able to show that you have the necessary skills through your business plan.

Income

Banks generally want to loan to an individual with two income sources, and you have to show this as well. One will ultimately be the business, but the second resource has to be steady to give support and can include your spouse's earnings or assets that can be turned into cash if required. Additionally, some banks may need personal assurance.

Research

Lenders want to know you've done your homework, and your research should be clear in your business plan. This includes specifying your business's services, the demand for it, local competitors, the degree of success for related businesses, your target audience, how the company will promote to them and estimated income. You can speak with business owners in your area or Service Corps of Retired Executives (SCORE) to get information.

References

Lenders like recommendations, especially from someone who is already a bank customer. Another good source is customers you have worked for; professional associations also help confirm professionalism.

Equity

As a business owner, you have to make sure you have money to begin your business, and your business plan needs to reflect this. Banks usually won't loan an owner 100 percent of what they need to start a business, therefore, an entrepreneur needs to have equity and know how long it will continue.

References

• What do Bankers Look for in a Business Plan?