Do you need a business plan to get a loan from a bank? (2024)

Do you need a business plan to get a loan from a bank?

Do you need a business plan to get a loan? This question may have different answers depending on the lender, but the answer should be “yes” regardless. That's because a business plan for a loan can be as simple as explaining how much funding you need, what you need it for, and why.

Why do banks often want a business plan from you, when your are applying for a bankloan? For Security, risk assessment and preparation. Writing a business plan is often necessary to apply for a bank loan, because banks: Like to minimize risk.

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.

It may be your only chance to get the lender excited about your business. So, keep it to just one or two pages and be as clear and concise as possible.

While you may not need a business plan to get a loan, it helps contextualize the numbers and patterns underwriters see in documents like your balance sheet and cash flow statement. In short, a business plan — even a condensed one — is an opportunity to humanize your business and explain how you plan to grow it.

A business plan helps to sell the opportunity to invest in your business to potential funders. Therefore, it's crucial to have a compact and realistic plan that clearly communicates your company's objectives, financial performance and strategy.

Banks typically offer competitive interest rates, long repayment terms and large loan amounts. Taking out a small-business loan from a bank can be difficult, however, if you've been in business less than two years, don't have consistent revenue or have fair, poor or no credit.

Financial documents

Up to one year of business bank account statements. Personal and business tax returns from the most recent three years. Most recent and projected balance sheets. Income statement and cash flow statement.

How to convince a bank to give you a business loan?

Business plans can help you get funding or bring on new business partners. Having one in place will help investors feel confident that they will see a return on their investment. Your business plan is the tool you will use to persuade others that working with you (or investing in your business) is a smart decision.

“Once funds from an approved loan are disbursed, interest begins to accrue immediately and is usually expected to be paid monthly,” said Larry Fuschino, owner of Raider Consulting. “Principal of the loan is to be repaid based on the terms of the loan, which can vary with each situation and borrower.

To qualify for a business loan from a bank, you'll typically need to have been in business for at least two years. Online business loans tend to have less stringent requirements but still usually require at least six months in business.

If you need funding to start, expand, or acquire a business, you'll need to know how to write a business plan for a loan. Yes, lenders will look at the standard factors required of all loan applicants, such as your credit history, credit score, and assets — But business loan lenders will also require a business plan.

Most $2 million business loans aren't easy to come by. You'll need to have good credit and enough revenue to convince lenders you'll be able to manage payments. It's also not uncommon to have to put up collateral. It helps to work with a team of dedicated professionals to guide you through the process.

While some lenders offer startup business loans with no revenue, profits, cash flow or assets required, you might pay a higher price for such financing. If you can afford to wait until your business is more established with a solid cash flow, you can likely secure more attractive interest rates and repayment terms.

As you seek to finance your business, your audience can be broken down into two groups: Potential investors and potential lenders. You should tailor your presentation to the differing interests and goals of these two groups and be ready to answer their questions.

When should you develop a business plan?

The best time to write a business plan is any time you can benefit from more focus and direction. This might be when you're in the early stages of exploring a new idea, when you're ready to commit to your idea, when you've been running your business for years, or even a combination of all three.

It can bring your business down and cost you resources, which will make it harder to succeed and forcing you to spend valuable time regrouping your efforts and repairing the damage.

Securing a $300k loan typically requires a solid credit score, comprehensive financial documentation, and a well-detailed business plan. Lenders will assess your ability to repay, looking at factors like revenue, profit margins, and existing debts.

How much of a business loan you can get depends on your business's annual gross sales, creditworthiness, current debts, the type of financing, and the chosen lender. In general, lenders will only provide loans up to 10% to 30% of your annual revenue to ensure you have the means for repayment.