What is the most important part of a business loan application?
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UPDATED: Nov 14, 2012
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Business loans applications need one essential item in order to even be considered for approval: a business plan. Without a structured plan, no company loan will be approved. A business plan can be small or large depending on the industry, but it usually outlines what the goals and methods are for the new or burgeoning business.
In order to finalize a loan application, borrowers must finish this important step which allows them to analyze the new company’s mission, strategy and financial needs. Lenders require critical information such as a borrower’s credit history, income tax returns, resumes, and, most importantly, a plan of action, aka, a business plan.
Lenders require plans in order to get an overall idea of what the proposed new or existing business is all about. A plan consists of nine key steps, which includes a summary of the company, market analysis, marketing plans, and financial projections, among others. The document allows for a company owner, or borrower, to think about what they expect from the new company and why they need funding. Without a clear objective and steps to enact the goals, lenders do not have a stable foundation to lend money. If a borrower has realistic expectations and solid ideas for sales, staffing and finances, the lender will increase their changes for repayment on the business loan.
Although they can be tedious to organize, plans can illuminate potential loopholes in an upcoming business. For example, a cupcake shop owner might plan for incoming supply deliveries and perfected baking methods, but ignore how difficult it will be to ship out fragile deliveries for their out-of-town customers. Without a plan, the cupcake owner could miss a large sector of his or her business by forgetting that some buyers want to purchase items online rather than in-store. Organizing a plan ahead of time would eradicate this and other problems from erupting in the beginning stages of a start-up.
One important item to remember is that business plans are never finished. As a company continues to grow and evolve—so should a business plan. Plans are not only for funding new operations via a business loan, but they also keep owners and investors updated on the company’s future. The structured documents can be essential when facing disaster, as the news has covered about Hurricane Sandy disaster loans. Having solid procedures and financial estimates ready in case of a disaster would greatly assist when trying to rebuild after a natural disaster. By creating a solid plan from the start, any business should be able to maintain a cohesive and informative business plan for the company’s existence.