Map Your Business, Make Your Case: Business Plans and What Lenders Look For
What Lenders Want to Know
Financial institutions want to answer one question before funding a business loan. Will your business have enough cash to make the loan payment each month?
Lenders primarily look at the five Cs of Credit:
- Capacity – is there enough money to pay the debt?
- Credit/Character – what is your history, have you paid bills on time? For a startup (or even an existing business) your personal credit will be considered.
- Capital – what money or equity are you putting into the business? Do you have a cushion for setbacks?
- Collateral – do you have other assets that can help secure the loan?
- Conditions – how will you use the money, and how does the market outlook affect your ability to repay the loan?
Lenders also look at your background and experience and whether your numbers are believable, especially in comparison to other businesses in your industry.
The requirements can vary considerably depending on the lender. In addition to the business and financial plan, most will want personal and business tax returns, a personal financial statement, bank statements, business formation documents, estimates for equipment, furnishings, build out/renovations, and anything else you will need before you launch. Ask for the lender’s checklist early.
Business Plans: If You Think It, Ink It
As promised, let’s take a look at business plans.
Do you need one? Yes! A business plan provides a map to get to your goal. Do you need to write it down? Also yes!
One of my favorite phrases is “If you think it, ink it.” I cannot count the number of great ideas I have had that I didn’t write down, largely because I don’t remember them. Don’t lose out on the idea because you depended on your memory.
Choose the Format for Your Audience
If the plan is for your own use, make it as long as it needs to be to provide the map. There are certain pieces (signposts, landmarks, etc., if I’m going to stay with that map analogy) that need to be in any business plan, but adjust the detail to fit the purpose.
I’m a big fan of the Lean Canvas, a one-page picture of your business model. Ash Maurya adapted it from Alexander Osterwalder’s Business Model Canvas to focus on the customer’s problem and a possible solution. It encourages you to understand the problem before spending time and money solving it.
That’s why I like it: you can get your basic ideas on paper quickly, identify assumptions to test with customers, and expand the details later. My other major reason is that it is a quick way to get the basic ideas down on paper. Those ideas can then be fleshed out for more substantial business plan formats.
So at its core, a business plan, no matter who the audience is, needs to identify the problem being solved, the customer, what makes your solution different, the solution (features), key metrics (how you plan to measure success), channels (how you will reach your customers), costs, and revenue streams. If you are doing something that cannot be easily copied or bought elsewhere, that should also be included.
All those sections should be included in any plan.
Other Planning Tools
These tools serve different purposes and can work together:
One-page written business plan – primarily for an internal audience, but may be all a financial institution needs if the requested funding is low.
Traditional business plan – a detailed plan usually needed when presenting to a lender, partner, or investor.
Feasibility study – focused primarily on the market and costs and whether the idea is financially promising before starting.
Pitch deck – short visual presentation that explains the opportunity used for initial partner or investor meetings.
Financial plan – usually part of the traditional business plan, outlining startup costs, ongoing revenue and expenses, and cash flow.
If you are looking for investors or partners, you will likely need a combination of these.
The SBA’s Traditional Plan Outline
The SBA identifies nine common sections. Use the ones that fit your business and the reader’s requirements:
- Executive summary
- Company description
- Market analysis
- Organization and management
- Service or product line
- Marketing and sales
- Funding request
- Financial projections
- Appendix
The SBDCNet provides a ton of resources for small businesses including business plan templates. Check out the market research links and small business snapshots as well.
Let AI Help You Get Started
An AI platform can help you organize your ideas, identify gaps, and draft a business plan. Describe your business, customers, experience, and what you know about costs and pricing, then ask it to interview you before writing. Work through one section at a time, checking the facts and financial assumptions as you go. Leave out sensitive personal or customer information, and remember: AI can make invented numbers sound remarkably confident. Use it as a writing partner, not a crystal ball.
Sample prompt: “Help me develop a business plan for my [type of business] in [location]. My target customers are [describe customers], and I offer [products or services]. The plan is for [my own use/a lender/a potential partner]. First, ask me questions one at a time to gather the information you need. Then draft one section at a time in plain language for my review. Do not invent market research or financial figures. Flag missing information, clearly label assumptions, and help me identify what I need to verify.”
Get Help Before You Pay for It
When you write your plan, consider your audience. A financial institution is not looking for marketing copy; it wants to reduce risk. Put across your idea and plan from the recipient’s viewpoint. Explain the business opportunity, acknowledge the risks, and show how you will manage them.
Before paying someone to write your plan, explore the help available locally. America’s SBDC has a nationwide network.
In San Antonio, the UT San Antonio SBDC provides no-cost business advising and no-cost or low-cost training, with access to international trade and government contracting assistance:
We’re also fortunate to have Launch SA, which offers advising, workshops, and connections to other resources.
Whatever format you choose, make sure you understand the plan and the numbers. It’s your business, and you’re the one who has to follow the map. As you would on any journey, adjust your route when necessary.