Submitting a Plan to a Bank

Chapter 22: Getting Financed - Page 22.7

Submitting a Plan to a Bank

As we point out in the discussions in this chapter, the process of taking out a bank loan is quite different from raising venture capital or angel investment. Banks are not allowed to invest in a business plan in an entrepreneurial way because they are using depositors' money and they must by law have real collateral to back up any loans. Therefore, the plan you submit to a bank is different from what you submit to a potential investor.

For a bank loan, your plan needs to have the same critical information as for any other use. However, it should also have more financial detail, more past history, and more information on the personal financial position of the members of the management team, the balance sheet of the business, and financial history of the business. Owners should expect to submit a personal financial statement, and for most smaller businesses and newer businesses the owners will frequently have to place personal assets at risk, and offer personal guarantees.

What Banks Want to See

Along with your plan, commercial banks will also want to see a loan application, copies of past tax reports for company and principals, good documentation of past financial results, and personal financial statements of principals.

Most banks will use commercial scoring methods to evaluate a loan based on indicators including the worth of assets and ratios measuring debt and liquidity. Business ratios, which we discussed in Financial Analysis: Finish the Financials, can be very important.

The Physical Document

For banks, submit a document a bank loan manager can pass around. It should be clean, bound, clearly marked with cover page and legal page, easy to read, and well illustrated. Wire coil binding is better than plastic and velobinding. Invest in strong covers, and make sure the vital information is clearly visible from the cover, or through a window on the cover page.

Legibility is important. Don't save paper with small fonts, and do use graphics and color where you can. Try to illustrate all key numbers with business charts.

Don't go overboard with your plan. Bankers are not going to be impressed by exaggeration of graphics, too many illustrations, or too much effort to make a plan flashy. They want to see that the business plan is developed by people who understand business. It should be easy to read, practical, complete, and concise.

[Home] [Buy this Book] [Links] [About the Author] [About this Site] [Site Map] [Contact]