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How to Write a Business Plan When Applying for a Business Loan

Woman at computer writing a business plan.

If you’re applying for a business loan, one of the first requests from traditional lenders will be to see your business plan. A business plan provides the information that traditional lenders need to make an informed decision about whether to approve a business loan and determine the amount. If you haven’t written a business plan before, it might seem like an immense challenge. A good place to start is with an outline covering all the information needed in the business plan. Here’s a brief overview of what to include in a business plan when seeking a small business loan.

Part 1 – The Executive Summary

Most lenders who look at your business plan will start with the Executive Summary. In this section, you need to capture the reader’s attention and provide good reasons why the plan should be read. For these reasons, it’s considered to be the most important part of the business plan.

In the Executive Summary, you will want to highlight the criteria that will make you likely to succeed. These can include your experience, your talented management team, the unmet needs your product or service fulfils, or your unique intellectual property.

The Executive Summary also highlights the key points in the business plan. For this reason, you will want to write the Executive Summary last after the other sections have been completed.

Besides covering key points, you will want to include your financial forecasts in the Executive Summary. In particular, include the size of the business loan you are seeking and how you plan to use the funds. Also, include the projected profits and expenses for each of the next five years.  

A strong Executive Summary is a crucial element when you are writing a business plan to help you get a business loan.

Part 2 – The Business Overview

In this section, you provide a general summary of the business which can include a brief history and any important achievements. You will want to explain how the business was founded and the type of legal entity it is.

A new business might not have many accomplishments, so you will want to mention the previous achievements of the business founders and key managers.

Creating a clear picture of your business in this section of the business plan will boost the confidence of lenders when considering whether to approve a business loan.

Part 3 – Market Analysis

In this section, you look at the big picture of your target market, including its size and characteristics. If you are in retail, for example, you will want to include the size of the retail industry, current trends and the sub-sectors that make up the market, such as luxury retail products vs everyday consumer goods.

Determining the specific market size for your product or service can be a bit tricky. This figure is what your sales would be if you were the only business in the market. You can calculate the market size by multiplying the estimated number of potential buyers for your offering times the amount of money they are willing to spend.

If you get stuck on determining the market size or getting other industry data, there are helpful resources. For example, IBIS World offers many industry guides that include in-depth information on particular industries.

When writing a business plan to secure finance, your market knowledge will show potential lenders that you have done your homework and thought about where your business fits in the market.  

Part 4 – Customer Analysis

This section defines your target customers and their needs.

Get as much information on your target customer as possible. This will include demographic data such as their age, gender, income, location, education and marital status. Some marketers suggest that you create what’s called a marketing or buyer ‘persona’. For example, ‘Mary Jones is 48 years old, married and has two kids. She lives in the inner suburbs of Melbourne, completed a bachelor’s degree and is a professional earning over $100,000 per year.’ Having this persona in mind will sharpen your focus when developing your offering and marketing it.

The customer analysis also needs to explain why the customer wants or needs what you are offering. What aspects of your product or service connects with them? Is it the quality, price, speed of delivery, comfort, value or some other aspect that stands out for customers? Answering these types of questions when writing a business plan for a business loan demonstrates that you understand who your target customers are. Demonstrating this knowledge increases the confidence of business lenders that you know what you are doing and will be able to repay your business loan.

Part 5 – Competitor Analysis

When writing this section of the business plan, you look at two types of competitors: direct and indirect.

A direct competitor fulfils the same wants or needs that you are trying to fulfil. For example, if you sell men’s formal clothing, other companies selling men’s formal clothing are your direct competitors. In this section, you will want to identify who your direct competitors are and what are their strengths and weaknesses.

An indirect competitor provides a different offer but fulfils the same needs of the customer. In this example, an indirect competitor could be a company that hires men’s formal clothing. As before, you will want to identify who your indirect competitors are and what are their strengths and weaknesses.

The final part of the Competitor Analysis section identifies your competitive advantages when compared to your direct and indirect competitors. In particular, what is it about your product or service that will enable you to compete against direct and indirect competitors? Answering this question will strengthen your case in your business plan to help you get your business loan.

Part 6 – The Marketing Plan

The marketing plan includes four subsections: products and services, pricing, promotions plan, and distribution plan.

When describing products and services, go into detail and explain their features and benefits. Next, explain your pricing in detail and how it compares with your direct and indirect competitors. Explain where your product stands in the market. Is it at the high end, low end, or somewhere in between? Explain how your branding fits with the pricing you have chosen.

Next, discuss your plans for promotion, including the steps you will take to attract new customers. Whatever form of promotion you choose – social media, pay per click ads, SEO, TV ad or media releases – explain how and why you will use it.

The final part of this section is your distribution plan. This part answers how customers will buy from you. Will it be from a physical location or online? You could also sell a product that is fulfilled by a third-party supplier. Whatever form of distribution you plan to use, explain how it will work in detail.

Marketing is the key to business success and keeps the money coming in. So lenders will want to ensure that your marketing plan section of your business plan is solid before they will approve a business loan.

Part 7 – The Operational Plan

The operations plan section of the business plan includes key operational processes and the milestones you plan to reach.

Key operational processes are the functions that must be carried out for the business to run properly. For example, will you have a sales department? If so, what are the key functions and roles of this department?

In the milestones section, you include the important goals you want to achieve and when you plan to achieve them by. These goals can include things like launching a new product, creating a new service or expanding to a new location.

Part 8 – The Management Team

The management team section of your business plan details the current team members, future management roles and board members. For current management team members, include short profiles outlining skills and experience, achievements and relevant education. The aim of the profiles is to show that the management team members have what’s needed to lead the business successfully.

Additional management roles might be needed in the future as the business grows. Explain what these roles will be and when they will be required as the business expands.

If you plan to have a board of directors or advisors, include their profiles in this section as well.

Part 9 – The Financial Plan

The financial plan section goes into detail about the financial aspects of the business and includes a revenue model, the amount of funds needed and how you will use them, and key financial figures.

The revenue model explains how you plan to generate revenue for the business. You could generate revenue from selling products or services, or both. Be clear on how revenue will come into your business.

Key financial figures include projected revenues, expenses and net income over the next five years.

When seeking a business loan, lenders will want to know how much money you want and what you plan to do with it for starting or growing your business, so this information is an essential part of your business plan.

Part 10 – The Appendix

In this section, you include all supporting documentation not included in the main parts of the business plan. This includes detailed financial information (such as the balance sheet, income statement and cash flow statement). Include any other documentation that will support your plan, such as key customer lists, awards received, and intellectual property owned by the business.

Putting it all together

Once you have written your business plan, you will want to go through it a few times to improve it. If you if can know someone with business and/or lending experience, ask them for feedback on your business plan. Keep in mind that your business plan needs to make a strong case for why you qualify for a business loan. Besides your business plan, it will help to think about the factors lenders consider when you apply for a business loan.

Although it’s good to have a business plan to guide you, remember that online lenders, such as Moula, don’t require a business plan to be considered for their loans. The application process is quick and simple, and you will get an answer within 24 hours.

For comprehensive information on business loans, see The Complete Guide to Business Loans in Australia.

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All the thoughts, ideas and musings from the Moula team! Covering everything from work/life balance to general finance tips plus everything in between!

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