Do I Need A Business Plan To Get A Small Business Loan?
Small business owners generally need some type of plan to help focus strategy, assign and track responsibilities, manage money and more. A lengthy formal document referred to as a strategic business plan can arrange all your tips on this front into concrete action plans. However, developing a formal strategic business plan can be an overwhelming and time-consuming document to construct, particularly when you're working hard to develop your company. But it is generally worthwhile, as some financial institutions require business plans included in loan applications.
Business plans and small business loans often go hand in hand. That's because all business plans include a operating plan that can help you determine whenever you might need funding. And then, together with your business plan ready to go, you might be more prone to get approval for borrower-friendly funding. The best funding sources often come with such low interest and long repayment terms their repayment burden feels minimal.
Of course, all of this might have you asking, “Do I need a strategic business plan to get a small company loan?” Learn more below.
What is really a strategic business plan?
A strategic business plan is really a document that explains a roadmap for your most important operations. Which includes marketing, sales, distribution, production, and objectives. A great strategic business plan also includes robust competitor and break-even analyses to prove that your clients are more prone to succeed than fail. The more persuasive your plan, the much more likely any lenders to whom you show it'll fund your company.
Do I need a business plan to obtain a small company loan?
The answer to this is usually, although not always, yes – because it tends to vary by lender. For instance, SmartBiz(R) doesn't require applicants to submit business plans, which means you can get SBA 7(a) loans and bank term loans with no effort and time which goes into creating a company plan. You should observe that even if lenders do require business plans, these documents aren't a computerized path to approval.
Traditional bank requirements vs. alternative lenders
If you're approaching a conventional bank for a loan for any small business, your loan officer may require your own business plan to appear more favorably on your application. You may be required to give a business plan whether you're trying to get SBA loans or traditional bank loans.
However, if you're using an alternative small company funding lender, you don't have to present this document whatsoever. That's only one way in which alternative online lenders like SmartBiz are more flexible. These lenders typically provide online applications which can show loan options that you might qualify for. You will also have easy access to customer service for any assistance you need, which isn't forever the situation with traditional banks.
Documents necessary for traditional banks
Traditional banks may require strategic business plans alongside the next documents:
- Credit report. Typically, you must give a credit report showing a personal credit rating above 660.
- Proof of time in business. To be eligible for a a financial loan, your organization should have a minimum of two years running a business. Your posts of incorporation or organization will help you prove this time around running a business.
- Financial capability to repay the loan. You have to also demonstrate sufficient cash flow to settle the borrowed funds. Financial statements such as balance sheets and income statements will help you reveal that your company finances meet this requirement.
- Proof of resident status. Small business borrowers must provide proof of U.S. citizenship or permanent residency. All other residency statuses disqualify you against getting loans from banks.
- Financial record clear of difficulties. Another requirement has no bankruptcies or foreclosures within the last three years, as well as no tax liens. Your credit report might be the best choice for proving your clean record.
Documents required by alternative lenders
SmartBiz CEO Evan Singer was recently interviewed concerning the requirements to get an SBA loan through the SmartBiz website. He explained, “SmartBiz doesn't require a strategic business plan or projections, which is one of the ways it differs from a number of other SBA lenders.”
What are the documents necessary for SmartBiz to secure funding? You'll need to collect a number of personal and business information including those below.
- Personal and business tax returns. You have to submit your last three years' of private and business tax statements together with your application. These documents can help lenders understand your earnings – and, for an extent, expenses – at surface level.
- Personal financial statements. All people who own a minimum of 20 % of the company must provide personal fiscal reports. These documents might help lenders see whether or otherwise there are financially responsible people behind your company.
- Profit and loss statement. Also referred to as an income statement, this document shows all of your revenue and expenses throughout a period. It's an smart way for lenders to determine your company's financial performance.
- Balance sheet. Balance sheet offers an especially clear financial summary of your business. It covers some point over time rather than a broad period. It operates on the next equation: assets = liabilities + equity.
- Collateral. Alternative lenders may require a lien on your business assets when you apply for SBA 7(a) loans. This lien gives the lender temporary ownership over these assets, which could include your accounts receivable, inventory, equipment, and commercial real estate. This way, the lending company can recoup their losses if you do not repay. For SBA 7(a) commercial real estate loans, the home is the collateral.
- Miscellaneous additional documents. You may also need to show documents proving your company's location and type of entity. Alongside these documents, you may want to incorporate your articles of incorporation, business licenses, franchise agreements, and commercial leases. For SBA 7(a) loans, a completed SBA Form 413 is a must.
Why do you want your own business plan?
Even though you don't always require a strategic business plan to obtain funding, many reasons exist to produce one. These reasons include the following.
- Easier to set and achieve goals. A business plan might help define a brand new business's objectives. It can also define the programs you need to achieve those objectives. That's a winning combination if you are not trying to get loans.
- Internal analysis. Your own business plan can be used to evaluate a new product line. Additionally, it may produce a regular business review and course correction process. This can all prove useful whenever your company faces new demand or any pressing issues.
- Legal applications. A business plan might help define agreements between partners and set a value on a business for sale or legal purposes. It can benefit you avoid costly litigation or arbitration and much more quickly reach a contract that actually works for everybody.
To find out more about what a formal business plan will include, visit the Small Business Association website. Are you currently a small business owner seeking funding to expand your company? Go to the SmartBiz website today and discover if you're qualified to have an SBA loan in 5 minutes or less.*