We get asked a lot of questions about business plans here at Business PlanIt. So we are putting together a series of blogs with answers to the questions we get asked the most. We hope you find this useful!
#1 Why do I need to write a business plan for my start up if the bank will only lend against my personal assets and income?
Well, you don’t have to write business plans for start ups. But the bank will not consider this a business loan, more as a top up on a mortgage if you have one, or a home loan if you don’t. Sometimes the interest rates may be better if you approach it this way, but the problem is that your business will have no track record with the bank. So when you start making a profit and you potentially want to expand, the bank may find it more difficult to assess the credit profile of your business, and therefore restrict the loan and products they provide to you. Check out www.howtowriteabusinessplanhq.com for more information on creating a business plan for bank funding.
In order to apply for a business loan, you need a business plan. And this is a good way to set up your relationship and credit history with the bank in anticipation of the business standing on its own. Down the track you may be able to negotiate removing your personal security in support of the loan if the business has a good track record that the bank has been monitoring since it started up. All good reasons to write a business plan for a start up in support of a small business loan application.
#2 Why business plans need reasonable and supportable sales projections?
A critical part of successfully obtaining funding is the building of credibility and belief in the performance prospects of your business. One of the main ways to do this is to provide a potential investor with forecast projections that are supported by logical and reasonable assumptions and analysis. Investors need a reason to say “yes” to an investment proposal and the easiest way for them to say “yes” is if they believe they will get there money back and get a decent return on their investment (if they are providing equity). So this comes back to the importance of the sales projections being reasonable and supportable. Supporting you and your business’ credibility, while being believable and providing the potential investor with a solid reason to say “yes”. So, complete business plans contain reasonable sales projections.
#3 How many years of forecast projections will the bank need?
Most banks prefer three years of forecast projections to be included in business plans. The reason for this is that the average tenor of a term loan is three years. So they will want to see forecasts for the life of the loan that they are being asked to provide. If you are only seeking a short-term loan, say six months, then you could probably provide a one year forecast. But its always good to check with the bank to see what they require. Read this article at www.howtowriteabusinessplanhq.com for more information on business plan financial projections.
#4 Are one page business plans sufficient for small business loan applications?
Generally speaking, one page business plans are not sufficient for small business loan applications. A one page business plan usually results in a great deal of questioning by the bank, a delay in the approval process, and diminished credibility about the depth and future performance of the business. However, if all you are after is a credit card, then it might be sufficient. But you always need to bear in mind that the sooner the bank becomes familiar with your business and comfortable with its future direction, the sooner the bank will rely on the business solely in terms of its ability to get its money back. So we always encourage small business owners that a full business plan is the best way to go.