The Inside Scoop: What Banks Look for in a Business Plan (2024)

Imagine this: You’re looking to fund your new business.

How do you get the money you need? Here’s what banks look for when making business lending decisions:

• The purpose of your loan
• Your business model
• Your repayment source
• Your plans and vision for your business’s future
• Your budget and financial projections forecast
• How your business may be impacted by current economic conditions
• Your reputation and history
• Your management team

This information, and more, should be laid out in your business plan. Your business plan can be long and detailed (traditional plan), or short and concise (a one-page, lean startup plan).

For financing purposes, banks commonly request traditional business plans since they go into greater detail. Lean startup plans are usually most useful to introduce the concept of your company to a prospective lender.

A business plan matters.

It’s your company’s blueprint for success. It helps you, the business owner, focus on the specific steps you need to take to make your business successful, and helps the bank assess risk in funding your loan.

Banks have underwriting standards to determine the risks of making a loan. Your business plan is a tool banks will use when examining your character, capacity, collateral, capital, and conditions (the “five Cs of credit”).

It’s important for the bank to have a deeper understanding of your business to build credibility.

So, how do I write a business plan?

First, you need to determine which type of business plan you’re going to write – the traditional plan, or the lean startup. As I mentioned, banks generally prefer traditional business plans.

Traditional business plans typically use some combination of these nine sections:

1. Executive Summary
2. Business Description
3. Market Analysis
4. Organization and Management
5. Service or Product List
6. Marketing and Sales Plan
7. Funding Request
8. Financial Analysis and Projections
9. Appendix

Executive Summary

The executive summary introduces your business. Here, you should briefly explain what your business is and why it will be successful. Make sure it has an interesting hook: Why should the bank believe your business will be a success?

Your executive summary should include your business name, mission and vision statements, key personnel, address, business background, product(s) or service(s), financial goal information, and high-level growth plans.

Business Description

This is your opportunity to go into greater detail about your business. Talk about the problems your business will solve, explain your competitive advantages, and list the target market(s) you plan to serve. This section is where you’ll showcase your business and describe its unique value to the market.

Market Analysis

Your marketing analysis should prove that you have a good understanding of your industry and target market(s), and have adequately researched your competition. It should explain any trends that your research found and answer the question: What is your competition doing well or not so well? Then, explain how your business can do it better.

Organization and Management

Describe how your business will be structured (organizationally and legally) and who will operate it.

Include an organizational chart to describe everyone’s responsibilities. Show how your team’s key members will contribute to your success.

Service or Product List

This one’s simple: Explain, in detail, what service(s) or product(s) you plan to offer or sell. Describe how your service(s) or product(s) will benefit customers. Think about how you’ll determine price points and how they’ll compare to your competition.

Marketing and Sales Plan

Discuss how your business will attract new and keep existing customers. What message are you trying to express and how will it resonate with your target audience(s). Describe how you’ll build brand awareness and loyalty.

Funding Request

This is where you’ll outline your funding requirements. Indicate the terms you’d like and the length of time your request will cover. If you need capital to buy equipment, pay salaries, or cover certain expenses, lay that out. This is also a good place to add a description of your future strategic financial plans.

Financial Analysis and Projections

You’ll want to include a financial analysis to supplement your funding request. In this section, your objective is to convince the bank that your business will be a financial success.

For a new business like yours, be clear and realistic with your projections. When forecasting your financial outlook, you should project at least five years out. Use charts and graphs to visually represent your financial story.

Appendix

This is where you’ll list any supporting documents, materials, or pieces of information that didn’t fit naturally elsewhere in the plan. You may include relevant patents, licenses, permits, product pictures, credit histories, or other contracts here.

Lean Startup Plan

While most banks prefer the traditional plan to the lean startup plan for making lending decisions, the lean startup does have its pros.

Compared to a traditional plan, lean plans allow for more flexibility. Without going into great detail, you can describe each segment (nine total) at a high enough level where they can be covered on one or two pages.

The nine segments of a lean startup plan are: key partnerships, key activities, key resources, value proposition, customer relationships, customer segments, channels, cost structure, and revenue streams.

Regardless of format, the important thing is to be clear and concise about your business plan from the beginning.

Bottom Line: If a bank is confident that you’ll be able to repay your loan, your business plan has done its job.

We can help. Whatever stage your business is at, our business bankers are experience and knowledgeable and would be happy to work with you. Because helping you build a successful company starts with a solid business plan and a strong partner.

Let’s get your business to next!