Business Plan for a Bank
Writing a business plan specific for a bank loan is a pretty straightforward process. This is due to the fact that the primary concern of the bank is that your business is going to be able to make the monthly principal and interest payments on any debt instrument that you obtain. Usually, a significant portion of the business plan specific for a lending institution is focused significantly on the tangible assets that we purchased with the capital required. Although service-based businesses typically do not need very many tangible assets, a banking institution and its respective loan officers are going to want to see that they have a significant amount of collateral backing the debt obligation.
In many cases, the bank will also require a personal guarantee from the borrower. This puts homes, retirement accounts, bank accounts, vehicles, and other assets that are owned by the individual as part of the overall collateral that is used for the business loan. As such, a significant amount of attention should be paid as to whether or not the entrepreneur wants to undertake such a substantial financial obligation given that all of their personal assets are generally put at risk as well.
The key to showcasing a business plan to a lending institution is also the focus on the fact that the business is economically viable. Most importantly, the business plan needs to very clearly show that the business is able to produce a highly predictable revenue so that monthly payments can be made without question. In some cases, especially for businesses a take a little bit of time to ramp up, a financial institution may allow for interest-only payments or reduced payments during the first six months of the life of the loan. However, this is something that is usually subject to negotiation as banks want to see that they are going to receiving their interest payments quickly once the loan funds are disbursed.
On a side note, it should be mentioned that many banks and financial institutions will directly disburse the funds to companies that are selling the business its tangible assets. Usually, for any purchase that is over $10,000 – the bank is going to want to make this payment on their own given that they want to make sure that the funds are actually going to where they have been allocate, and they want the proper documentation for the underlying asset. There are exceptions to this rule, but vendors should be sourced prior to applying for a loan so that the bank can very quickly make a disbursement to vendors if they decide to make a disbursement directly to the asset selling company. In many cases, this works similar to a real estate transaction would occur with the bank itself disburses funds to the property seller.
One of the other things at the bank is going to want to see as well as a substantial amount of market and industry research as relates to the business. This includes having an economic overview in regards to how the economy is doing, the interest rate environment, and other important factors that are occurring as relates to the economy as a whole. Industry research should include information regarding how the industry is growing, the growth rate, aggregate revenues, aggregate payrolls, and any potential regulatory trends that may impact the way that the industry does business. This is especially true in areas where there is a significant amount of regulation guiding the way that these businesses conduct business on a day-to-day basis. One of the nice things about the Internet these days is that industry resource can be sourced very quickly from a number of different reputable sources. Our website uses a number of publicly available information sources
when sourcing its industry research. Typically, the section of the business plan can range about two pages should provide clear overview of anything major regarding the specific industry in which the company will operate. The section of the business plan also outlines the demographics of the customers at the business will have all concurrently showcasing major competitors of the business will face once it begins revenue-generating operations.
The bank is also going to want to see a significant marketing plan so that they can understand exactly how the business is going to reach customers at the very onset of operations. In this section, many entrepreneurs will also put in information regarding how they will promote the business prior to revenue generation. This is important so that a major grand opening can occur and that revenues can be produced very quickly. This is especially important for retail businesses as they need to have revenues commence immediately so that he can pay for all the underlying operating costs in addition to any debt obligation.
As it relates to the financial projections, a business plan specific for a lending institution should always include a three year to five year profit and loss statement, cash analysis, balance sheet, breakeven analysis, and business ratios page. Special attention should be paid to the common size income statement and the profit and loss statement so that these figures are developed in line with industry standard figures. Almost all financial institutions will verify the financial model provided by comparing it to similar companies within the industry.
Of course, any businesses every business is different and certain things need to be adjusted in order to reflect this fact. If an individual entrepreneur is having a significant amount of trouble developing the financial model than they can work directly with the business plan writing firm or a certified public accountant that can assist them in developing this financial model. One of the things that many entrepreneurs make a mistake about is not having a complete understanding of how a profit and loss statement, cash analysis, and balance sheet operates. There are a number of great resources on the Internet and through this website that can help an entrepreneur understand exactly how these three financial statements work together. One of the things that an entrepreneur can often miss if they don't understand the statements is how their liabilities can change depending on how sales occur. A certified public accountant can be an invaluable source of
information not only is it relates to tax matters but also general accounting matters as well.
One of the things that should also be included within the business plan that is going to be presented to a bank is any critical risks and problems of the business may face as it progresses through its operations. As we discussed before, it is unpleasant have to think about all the negative scenarios that can occur to a business – however, it is important to the bank understand that the entrepreneur knows that not everything will always go as planned and at specific matters will occur and the business we need to deal with them appropriately. In fact, most business plans that go to the bank have a requirement they have a critical risks and problems page.
Finally, most business plans also include a SWOT analysis. This analysis focuses on the strengths, weaknesses, opportunities, and threats. A bank is going to want to see a detailed description of each of these four matters for any specific business. Usually this is done in bullet point format, but can also be written in paragraph format.