Starting up, or growing an existing venture usually requires a huge cash input. Acquiring new assets and even hiring new employees calls for a cash outlay. In most cases, businesses usually approach lenders for the additional investment needed. One of the main requirements that most lenders have is for a detailed business plan to accompany funding applications. This means that without a business plan, they would otherwise not consider your application.
This then begs the question, how does a business plan help you when applying for funding? Answering this question will help you appreciate the lenders’ point of view
Read on to find out the impact of a business plan when it comes to applying for funding.
A good business plan to be used in the application for funding should contain important information that helps the lender establish the following.
Where you are financially
A business plan should communicate whether you are a start up looking for funding to get the operation off the ground; or an existing business with past performance data. Start ups usually use estimates based on other similar businesses in the industry in their business plans; while existing businesses have past performance data to back up their plan.
How much you need
Since you aim is to secure financing, your business plan should be able to communicate the exact amount of funding you are applying for. The plan should list any other funding sources that have already been secured to give the lender a clear picture of who else they might have to deal with.
How it is utilized
After establishing how much you need as per the disclosures above, the lender will also need to know how their money is to be used. This means clearly outlining how each cent of the funding will be used in getting the operation off the ground or growing the business. This part helps the lender understand how important the funding is to the operation. .
How it will be repaid
Finally, a business plan shows the lender how their money is to be repaid. Business plans come with financial projections for the expected future performance. These projections help demonstrate how returns will be generated to support repayment of the borrowed funds.
As you can see, a business plan helps lenders wrap their mind around your business. It gives them a clear picture of what you wish to achieve with the funds; and demonstrates how repayments will be managed.