Saturday, September 29, 2012

Why Do Banks Need a Business Plan?

If you have been running a business successfully for quite some time now and you want to apply for a loan to fund your expansions, you're most like to get a loan without hiccups. But if you have a start up venture, then getting a loan sanctioned will not be easy. Private lending institutions will willingly lend you a loan but charge steep rates of interest.

Banks are the most likely source where most start ups and small business firms apply for loans. Banks will ask for a business plan in the first place. You can talk to a business plan service for with preparing a sound business plan.

Your financial plans should be practical and realistic

Apart from preparing a good business plan, you'll need to have financial goals that are realistic and you think you can achieve eventually. Banks are particularly averse to lending loans to small firms and start ups. This is so because the depositors don't want banks to invest their money in risky business ventures that do not guarantee assured returns.

So, banks would ask for collaterals that the bank will hold as mortgage. They would sell these off to realise their dues in case you're not able to payback the loan amount. Collaterals would be your personal assets like home, and savings. But having a sound business plan with achievable financial objectives will make your task of seeking a bank loan smoother.

Think from the lender's perspective

Put yourself in the shoes of the lender. Your prospective lender, a bank in this case, will want to doubly reassure itself that you'll be able to payback the entire loan complete with the interests in the stipulated time period.

They will want to know your business plans. How do you intend to get the best returns on your investments? Is your product or service saleable? Will you be earning enough to reimburse the loaned amount? What personal assets can you provide as collaterals? Do you have guarantors to back you?

Banks prefer lending to someone who has the requisite and extensive experience in the business. You'll need to back up your claims with relevant documents. You chances of getting a loan will go up if you can provide documentary proof of an extra income source like your spouse's salary. You can get in touch with business plan services if you need tips on how to draw up a good business plan.

You will need to fulfil official obligations

If you're seeking an SBA (small business administration) loan, you'll need to provide for 30% of the amount, apart from an effective business project. Banks will provide the rest 70% of the loan amount, in case your loan gets sanctioned.

Inspite of having a superlative business, banks might ask you to fill out a loan application form. You might be asked to submit documents like tax returns, audit statements, and balance sheets of your organization for the last five years that reflect the financial health.

You'll need to have a no holes barred plan

You can make out whether a bank is interested in giving you a loan by the interest it takes in reading your plan. Business plan services help you to organize a business project complete with all the features.

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