So you have a brilliant idea that you are absolutely positive will be a success. It’s going to be awesome, and you know you have the ideal target market for it. You can just picture it now, you being the newest entrepreneur in the ever-competitive scene of business gaining recognition for your brand and, most importantly, laughing your way to the bank.
It all sounds peachy, except maybe for that one tiny detail you haven’t really worked out yet: you need funding for it. Now, as much as you would like to just dip into your own personal pockets to get the ball rolling, you can’t. Simply put, you just don’t have the funds to bankroll this brilliant idea of yours into reality all on your own. Don’t worry, though, because not all hope is lost. The good news is that there are various institutions, such as banks and business loan lenders, who you can turn to in this time of capital need.
The challenge is that you will have to convince them first to lend you money. Of course, you cannot expect to show up at their office, ask them if they would so kindly fund your business, and then be handed a cheque right then and there. Because of the amount that you will be borrowing—starting a business is never cheap, after all—they will need to scrutinise your application carefully.
There is no guarantee that you will be getting what you came for as there are a lot of factors that they will have to consider, but at the very least, you can try to give it your best shot at impressing them with your business idea.
Pitch to Impress
The way to convince these institutions to grant you your small business funding is to pitch to them your idea through a solid business proposal. Essentially, business proposals play a crucial role in starting your business, because this will articulate how feasible your plan actually is. As you may very well know, there are a lot of instances wherein business plans don’t come to fruition because the would-be financial backers didn’t get sold the idea on paper.
Here are the important elements of an effective business plan that you will need to present when seeking a small business loan.
1. Executive Summary
The best way to get them to understand your idea is to describe it to them as concisely as possible—think of the executive summary as your proposal’s abstract. The tricky part about this particular section of the proposal is that you have to find the balance between being just the right amount of informative, as opposed to pouring over every detail such that they lose interest in reading it.
Keep in mind that they want the details, but not necessarily an entire thesis. The entities that you will be approaching for help are most likely very busy people. By dilly-dallying, or being circular with your explanation, you open yourself to more risk that you won’t be getting out of the meeting with what you came for in the first place.
2. Mission and Vision
Having a plan as to how you will build your dream business is one thing, having a plan on how to sustain it for the long-term is another. This is why you should be able to express your company’s mission and vision as concisely as possible. You don’t need the poetics to gain approval for your business loan application, but it will certainly help for your would-be investors to have an idea as to what your motivations are as a business person.
This portion of your business plan also yields further insight as to how serious you really are about your business endeavour. Can you, even before you officially open shop, say honestly that you are already looking forward to the many bountiful years ahead? What is your vision ahead of you? Again, you don’t need to try to impress them so hard; keep your vision feasible, attainable, and within a reasonable timeline.
For example, you might want to say that you would want to start expanding your business two years from the time you open your first branch. Then you lay out the steps you perceive you will need in order to accomplish this. The more they are able to picture your idea in their head, the more likely that they will jump on board and help you, if only for the fact that you really do seem to know what you’re doing.
3. Product/Service and Target Market
Of course, you cannot put up a business if you do not have a particular product or service in mind—these are, after all, the very reason why you are asking for a small business loan in the first place. The key here, therefore, is to know these components of your business inside out.
What is the product you are selling? What are its benefits and advantages, when compared to other similar items in the market? If it is a service, what is the need that you would like to provide for as a company? More importantly, who are the intended paying customers of these products or services?
Being able to identify these elements as clearly as possible is imperative, because these are clear indicators of how well your business plan and execution would be. Having a good product or service isn’t going to be enough; you will have to have a clear target market, too, that will match logically with your products or service. The one, without the other, will not be able to stand on its own for long, if at all.
4. Financial Projections
For the crux of the matter, the very reason why you are approaching their company for financial help, it would be to your advantage if you provide a comprehensive breakdown of the finances that you will most likely need for your business.
More than that, however, you will also need to have a plan as to how you will be able to recoup the investment they made on you through the loan you will receive. Remember, this is a loan that you will be getting, which means that there will be corresponding interest charges.
Your lenders will naturally want assurance that you will be able to pay them back accordingly, and in the agreed upon due dates. Of course, there is nothing as important as you following through on this agreement, so you better make sure you do not put the integrity of your name and brand at risk over unpaid loans.
These are just some of the important elements of an effective business plan for loan application. Seek out further advice from those who have gone through this process, too, so you can better have an idea of what to do and what to expect when it’s your turn.