Business Plans

The Right Business Plan is Key to a Loan Request

The information here is intended to provide only a general understanding of small-business issues. Readers with business problems should consult appropriate professionals for advice on their particular circumstances.

Q. I have a retail outlet specializing in unusual home furnishings. I have been in business 18 months, and it has become obvious that I need to expand my inventory. To accomplish this I need to obtain a loan. I know the bank will want a lot of detailed information, so how can I be sure I'm developing the right material?

A. Your concerns are well founded. When a bank turns down a business loan application, the reason is often due to an incomplete or inaccurate loan application, business plan and/or financial statements. To gain the confidence of the lender, you must demonstrate both your commitment and preparedness. While you are not starting a business from scratch, your business is so new that you should approach the loan request as if it were a new business.

Regardless, if you do not have an ongoing relationship with a banker, it's time to develop one. Get to know the loan officers at the bank where you plan to apply for the loan. By doing this, you eliminate the factor of being a stranger. They will be more comfortable making a loan to a person they know. These early meetings also give you the opportunity to tell the loan officers about your business and provide you the opportunity to familiarize yourself with the loan process and the actual data needed.

Here are several common elements of loan applications:

This is a complete description of the nature and type of your business. The plan includes resources available to you and how you plan to put these to use in order to meet your goals.

Include information about your specific business, goals, timelines, market analysis, competition, location, management skills, financial objectives, and an executive summary that will provide a synopsis of the overall plan.

This statement will show how much liquid cash is available within the business. It should provide a snapshot of how sales and expenses affect your operating cash on a monthly basis.

The cash flow statement will provide the bank with a picture of how much cash you will have on hand and whether you will be able to assume an additional monthly expense in the way of a loan payment.

The balance sheet is the listing of the assets and liabilities of the firm as of a specific date. The statement gives the bank an idea as to the stability of the business.

If the business is a startup, you will be required to include a statement of assets and startup capital that will be brought to the firm.

A lack of management experience is often cited as the main reason for business failures. If you can demonstrate skills that encompass financial, operational and employee issues in your résumé, then you build the bank's confidence in the amount of knowledge and skill you can bring to operating a business effectively.

Whether you are currently in business or planning to start a new company, begin planning now. Even if you don't need a loan today it will always be beneficial to you to have good relationships at your bank and a viable business plan.

Ken R. Roys is President and a management consultant. For free counseling and workshops, call 713-849-2300 in Houston, Texas. Send your small business questions to BTF Management Consultants, 5402 China Doll Ct., Houston Texas 77041, 1-866-385-1900 Toll Free.