Will a Business Plan Help Me Obtain Credit?

If you're looking for credit from a vendor or service provider,
probably not. But, and it's a huge but, if you're looking for a
bank loan, absolutely yes.

Bankers can be nervous little critters and need to be assured of
two things:

1. Your company is stable and has enough cash flow to pay back the
loan with interest.

2. The owners of the company, that's you, has the intention to pay
back the loan.

A business plan demonstrates that the company has the assets in
place to secure the loan if all else fails. It also shows that
you, as the owner, has the foresight to plan ahead. The business
plan gives the banker just about everything they need to know about
your company.

What should be included in a business plan? It's not a complicated
document to put together. You'll need an executive summary which
should be about two pages long and is just, as the title says, a
summary of your plan. Also included should be an overview of the
history of your company, its industry, the market, competitors, the
products, and marketing strategies. The business plan doesn't have
to be 300 pages long. As long as all the required information is
included it can be 10 to 15 pages in addition to the financial
statements.

The business plan also includes the historical financials for the
last three years and projected profit and loss statements, balance
sheet and cash flow projections for the next three years. If the
historical statements can be put together by your account so much
the better.

A banker would probably also want to see an aged listing of your
accounts receivable and payable. A list of your major accounts
would be appropriate as well.

Bankers use the information to learn about the company and the
principals. It also gives them documentation for the loan
committee to justify the loan, interest rates, and loan covenants.

Of course the bank won't use the business plan as the only
information and sole documentation but will verify it with outside
information, credit reports, a Dunn's report, and if necessary
onsite inspections.

The business plan also serves as a check point. Down the road the
banker can look at your current performance and compare it to
projected performance in the plan. If there are huge variances, an
explanation will be necessary.

Appearances count in a business plan. Have a few trusted advisors
read it for clarity; if they don't understand your plan, the banker
won't either. And what isn't understood doesn't get approved.
Triple check for spelling and grammatical errors, first impressions
count. Finally, even if you use a program for forecasting, check
the math, and check that any changes you've made in your
forecasting model are carried through to your narrative in the
plan. It's confusing to find one number for total sales in the
financial statements and another one in the narrative.

Have the plan copies on good paper. You can print on both sides of
the page if the paper is heavy enough in weight to stop the bleed
through to the other side. It's not necessary to use a gold
embossed leather binder, but do use a new binder.