As a prospective small business owner you may be deciding between whether to pursue a conventional small business loan or a Small Business Administration (SBA) loan. For conventional loans, lenders are taking the risk of lending you the funds, without any guarantee by the government. This means that, typically, you’ll need to have a higher credit score in addition to a good financial and business history to confirm for the lender that your business is worth the financial risk.
SBA loans help both the qualified lender and you by acting as a safety net to the lender. It does require a bit more paperwork and may add some steps to the process, but with a preferred lender who understands the process, SBA loans are a great option.
But in order to qualify for either type of small business loan, you need a business plan to demonstrate to lenders that you have the data, resources and savvy to be worth the investment.
As you’ve probably heard “A goal without a plan is just a wish”. Your business plan is the document that shows your potential financial partners and lender that you know what you are doing- and what you plan on doing.
How long does it need to be? According to the Small Business Administration, “it depends.” In reality, it needs to be long enough to supply the required information to document your specific needs and approach to building and running your new business.
The Executive Summary section of your plan is the most important part of the entire document. This is the first section potential lenders see, so it should grab their attention and impress them with clear, concise information. This is where you tell them why your business plan will result in success.
A good tip: Write this Executive Summary after you’ve ironed out all the other details of your plan. At that point you’ll have had time to pull out the relevant bullet points and summarize your plans more clearly and succinctly.
Now you get the opportunity to describe your new business in more detail. Provide enough detail to tell the story, while also providing a bird’s eye view of your business and how its various elements will fit together.
Also include the most important factors that demonstrate what will make your business a success: your people. Include information on any business partners, your planned organizational structure (who reports to whom, etc.), and if you have an advisory board or board of directors, provide a resume or list of qualifications for each. Don’t forget to share information on your “inner circle” of trusted advisors, including those that provide you with legal, tax/accounting or other professional insights that can help you navigate the business world successfully. Show the lenders why these people are assets in their planned roles in your new business. You’ll also provide a planned org chart and related compensation plan for any employees.
And tell them what you plan to offer: your products and/or services. Be sure to include detailed descriptions of the benefits these products or services provide to your target audiences, as well as applicable copyright or patent information and any relevant legal agreements such as NDAs. Be ready to describe/compare what it costs to create/acquire/ provide the offerings vs what you hope to charge for them. This should include any market analysis on the going rate for equivalent products or services in that market/industry.
This is where you’ll share your research in context of what you know and learned about the potential for the business in your marketplace. You’ll need to share your experience in your industry plus the details for any market research information you’ve compiled. You’ll also need to include an in-depth description of the target market, the demographics for the location, industry-specific risks, and potential trend changes that could affect your business for worse – or for better.
This section should wrap-up with a five-year projection of revenue based on the research and assumptions you described above.
In the Marketing, Communications and Sales Strategy section, you will define the details of your marketing strategy, including how you are planning to attract and engage your potential customers; your channels of distribution, overall sales strategy, and detailed communications strategy.
In this section, you’ll need to disclose how much money you’ve already invested or plan to invest in the business yourself, along with details about your finances. It’s important that you use precise figures and avoid estimations in this section. This is where thoroughness and attention to detail are most important.
You’ll also need to list the exact amount of funding you are hoping to acquire. If you are unsure of the precise amount you should ask for, you can detail a best case and a worst case funding scenario.
If you have supporting documentation that is relevant to your plans, create a section at the end of your business plan to organize and provide to your lender for review. This could include copies of your professional licenses or certifications required for your type of new business; architectural plans or product designs; letters of reference; etc.
Once you’ve written your comprehensive business plan, you are well on your way towards being ready to meet with your prospective lender – and acquiring that small business loan that helps you make your goal a reality.