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.

After the Business Plan is Completed

One of the frequent questions that we often receive here is what to do with the business plan once it is complete. At this point you are probably invested tens of hours if not hundreds of hours into the development of your business plan in regards to showcasing what you’re looking to do, how much money you’re looking to raise, and with the anticipated financial results of the business will be over a three-year period. You have put your blood, sweat, and tears into this document and now you are about to begin the capital raising process. This is usually one of the more anxiety provoking parts of the of starting a business given that you are actively seeking funding in order to buy the assets to start your company’s operations.

First, once the business plan is complete it is imperative that is what is reviewed by a certified public accountant. This professional will review the business plan, make notations regarding the financials, and make sure that any financial statements within the document or in line with generally accepted accounting principles. This is important to note as many banks as well as investors are going to want to thoroughly review the financials before they render a lending or an investment decision for your business. One of the important things that the CPA will do as well will be to make sure that the financial model that you developed falls in line with industry standards. Many banks will often compare financial models produced by individual entrepreneurs to existing databases of similar companies. As such, it is important to showcase any potential revenues, expenses, and profits that are in line with other companies that operate within identical or substantially similar industries. If you are having trouble with this aspect of your business plan then you can hire a consultant that will allow you  to see sample financial statements of similar businesses within the market. The United States Economic Census provide this information for free on their website. A CPA will properly advise you as to what potential changes may be needed once they have reviewed the document. This professional can also compare your company to other similar businesses in the market.

If you are raising capital from an investor and you are also going to need to retain an attorney in addition to your CPA. Your attorney can review any terms that you outlined in regards to the business plan as it relates to an equity share or profit share. Additionally, your attorney can also develop the investment contract that will be needed between you and any potential funding source. This is often where many people get themselves into trouble given that many new entrepreneurs will raise capital from friends and family via alone or as a small investment. Even if you are raising capital from people close to you – it is important that you have an attorney develop the contract so that any discrepancies or issues that arise can be remedied through appropriate legal means. If you’re looking to raise a substantial amount of money from a number of different investors and an attorney can also draft a private placement memorandum for you as this may be required by your state as well as the federal government. Only a qualified attorney who has extensive experience in the field of securities law can make a determination as to whether or not your business is going to need to have a private placement memorandum. These documents are usually used when individual shares are going to be sold directly to investors on a private basis. This is important to note as there are also companies known as private placement brokers that can assist in entrepreneur with raising the capital they need once the private placement is complete. On a side note, a private placement memorandum or PPM is expensive. Most entrepreneurs report that they have spent somewhere in the neighborhood of $4,000 to $10,000 on having a qualified securities attorney develop this documentation on their behalf. As such, it prior to developing a business plan specific for a number of investors and entrepreneurs to determine whether or not they are prepared to take on the expense of having a private placement memorandum drafted in order to raise capital from a number of different investors. If the entrepreneur is planning to raise capital from a venture capital group or a private equity group as a single investor and usually a private placement memorandum is not needed. However, and again – only did qualified attorney can make this determination for you.

Once you have submitted the business plan to a CPA as well as an attorney, you may want to hire a business consultant to review the business plan so that they can read as if they were the investor. This individual can provide you with substantial notes as to what they see is a strong aspect of the document as well as what some of the negatives are. It is important to get as much feedback as possible from qualified business consultants, other entrepreneurs, and executives that have familiarity with the industry and that they will able to provide you with advice that appropriately guides for business development. Of course, any advice should be taken with a grain of salt. This is especially true among colleagues that may be reviewing the business plan alongside you. One of the other things that you may need to know within when having the business plan reviewed is whether or not you’re coming off with a good sense of clarity as to what your business is looking to achieve with the capital you are looking to raise. This is one of the common issues that many people have when they are developing their own business plan. As such, it is important that a number of people read it so that you get as much feedback as possible. At times this can be discouraging for many entrepreneurs as they will often receive feedback that they don’t want to hear regards to business risks for the overall business climate. However, if taken appropriately then this criticism can be reviewed constructively and improvements to the business plan can be made on an ongoing basis.

There are also a number of not-for-profit organizations that can assist you in developing your business plan or keeping the business plan once it is done. SCORE is a popular organization of retired entrepreneurs and executives that helps newer entrepreneurs and younger entrepreneurs with the development of their entrepreneurial activities. While these executives and entrepreneurs are a very good source of feedback in regards to a business plan they can operate a little bit slowly as it is done for free, part-time basis only. A paid consultant typically will provide you with much more in-depth insight as to what made be needed to your completed business plan.

In short, capital raising is an extremely difficult process and you’re going to need to remain very diligent as there can be heartaches and setbacks throughout the process. It is important to note that only you can make the appropriate determination as to whether or not your business is economically viable and should seek funding. The above the professionals can only advise you as to whether or not the business plan is appropriate to reviewed by a potential funding source.