how to make a business plan to get a loan

• Mar 30, 2023

The Ultimate Guide to Writing a Business Plan for a Loan: A Step-by-Step Walk-Through

The Ultimate Guide to Writing a Business Plan for a Loan: A Step-by-Step Walkthrough

As a business plan specialist and expert business planner, I'm here to guide you through the process of writing a comprehensive business plan for securing a loan. Whether you're a start-up or an established business looking to expand, a well-crafted business plan is essential for impressing potential lenders and securing the funding you need.

In this extensive, 5,000-word article, I'll cover everything you need to know about creating a top-notch business plan that will boost your chances of loan approval. We'll go through each section in detail, providing you with practical examples and tips to optimize your plan for success. So, let's get started!

Executive Summary

The executive summary is the first and most critical section of your business plan. It's a brief overview of your entire plan, highlighting the key points and giving readers an insight into your business.

Key elements to include in your executive summary:

Business concept: Briefly explain your business idea, the products or services you plan to offer, and the target market.

Company overview: Provide essential information about your company, including its legal structure, location, and mission statement.

Management team: Showcase the expertise and experience of your management team, emphasizing their ability to lead the business.

Market opportunity: Describe the market demand, trends, and target audience, highlighting the opportunity for your business to succeed.

Financial highlights: Summarize your financial projections, including sales, profits, and cash flow.

Loan purpose: Clearly state the purpose of the loan and the amount you're seeking.

Remember, the executive summary is often the first thing lenders read, so make it engaging and informative to grab their attention.

Company Description

The company description section is where you provide a more in-depth look at your business. It should give readers a clear understanding of your company's purpose, goals, and competitive advantages.

Key elements to include in your company description:

Business history: If your company has an existing history, briefly describe its origins and milestones achieved.

Mission statement: Articulate the purpose of your company and the value you aim to provide to customers.

Objectives: Outline the specific goals you want to achieve with your business, both short-term and long-term.

Products and services: Provide a detailed description of the products or services you plan to offer, emphasizing the benefits they provide to customers.

Target market: Identify your target audience, specifying their demographics, psychographics, and buying habits.

Competitive advantage: Explain what sets your business apart from the competition and how you plan to maintain this edge.

Market Analysis

The market analysis section demonstrates your understanding of the industry, market, and competition. It's crucial to show lenders that you've done your homework and have a comprehensive understanding of the market landscape.

Key elements to include in your market analysis:

Industry overview: Provide a high-level view of your industry, including its size, growth trends, and key players.

Market segmentation: Break down your target market into smaller segments, identifying their unique needs and preferences.

Target market characteristics: Describe the specific characteristics of your target market, such as demographics, psychographics, and geographic location.

Market demand: Present evidence of market demand, using data on customer needs, market trends, and buying behaviors.

Competitor analysis: Evaluate your main competitors, analyzing their strengths, weaknesses, and market share.

SWOT analysis: Conduct a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) to assess your business's position in the market.

Marketing and Sales Strategy

In this section, outline your marketing and sales strategy to show lenders how you plan to attract and retain customers, as well as generate revenue. A well-defined marketing and sales strategy is crucial to demonstrate that you have a clear plan for growth and profitability.

Key elements to include in your marketing and sales strategy:

Marketing objectives: Define your marketing goals, such as brand awareness, lead generation, or customer retention.

Target audience: Reiterate your target market, emphasizing their needs and preferences.

Unique selling proposition (USP): Highlight your USP, the main reason customers should choose your products or services over the competition.

Marketing channels: Identify the marketing channels you plan to use, such as social media, email, content marketing, or paid advertising. Explain the rationale behind your choice of channels and how they align with your target audience.

Sales process: Describe your sales process, from lead generation to closing deals. Include details on your sales team structure, training, and compensation plans.

Key performance indicators (KPIs): List the KPIs you'll use to measure the success of your marketing and sales efforts, such as conversion rates, average deal size, or customer lifetime value.

Operations Plan

The operations plan section details the day-to-day activities required to run your business. It shows lenders that you have a clear understanding of the operational aspects of your company and the resources needed to support your growth.

Key elements to include in your operations plan:

Facilities: Describe your business's physical location, including its size, layout, and any equipment or machinery required.

Production process: If applicable, detail your production process, including the steps involved, quality control measures, and production capacity.

Supply chain: Outline your supply chain, identifying key suppliers, procurement processes, and inventory management practices.

Staffing: Explain your staffing requirements, including the roles, responsibilities, and qualifications of each team member.

Management structure: Provide an organizational chart, showcasing your company's management structure and reporting lines.

Legal and regulatory requirements: Identify any relevant legal or regulatory requirements, such as licenses, permits, or certifications needed to operate your business.

Financial Plan

The financial plan is arguably the most crucial section of your business plan when applying for a loan. It demonstrates your ability to manage finances, make informed decisions, and, ultimately, repay the loan.

Key elements to include in your financial plan:

Revenue projections: Estimate your future sales, breaking them down by product or service category and showing growth rates over time.

Expense projections: Forecast your expenses, including fixed costs (e.g., rent, utilities) and variable costs (e.g., marketing, salaries).

Cash flow statement: Provide a detailed cash flow statement, showing how cash will flow in and out of your business over a specified period (typically 12 months).

Profit and loss statement: Create a profit and loss statement that projects your business's profitability over time.

Balance sheet: Prepare a balance sheet that showcases your business's assets, liabilities, and equity.

Break-even analysis: Calculate the point at which your business will break even, meaning your revenues equal your expenses.

Loan repayment schedule: Detail your proposed loan repayment schedule, including the loan amount, interest rate, repayment terms, and projected date of full repayment.

The appendices section is where you can include any additional documents or supporting materials that are relevant to your business plan. These documents may provide further evidence of your company's viability and help strengthen your case for securing a loan.

Examples of items to include in the appendices:

Resumes of key team members

Product samples or prototypes

Market research data or surveys

Letters of intent or contracts with suppliers, partners, or customers

Intellectual property documentation, such as patents, trademarks, or copyrights

Relevant licenses, permits, or certifications

Writing a comprehensive business plan for a loan can seem like a daunting task, but with the right approach and guidance, it's an achievable goal. By following the step-by-step instructions outlined in this article, you can create a well-structured, persuasive business plan that will greatly improve your chances of securing the funding you need. Remember to:

Pay close attention to your executive summary, as it sets the tone for the entire plan.

Be thorough and detailed in your market analysis, showing a deep understanding of your industry and target audience.

Develop a solid marketing and sales strategy to demonstrate your ability to attract and retain customers.

Address the operational aspects of your business, including staffing, facilities, and supply chain management.

Present a robust financial plan, complete with projections and a loan repayment schedule.

By doing so, you'll showcase your expertise, commitment, and preparedness to potential lenders, significantly increasing the likelihood of obtaining the loan your business needs to grow and succeed.

In addition to following the steps outlined in this guide, consider seeking professional assistance from a business plan consultant or specialist to review and refine your plan. Their expertise can help you identify any areas that may need improvement and ensure that your business plan is optimized for success.

Finally, remember to continuously update your business plan as your business evolves. Regular updates will ensure that your plan remains relevant and accurate, providing you with a valuable roadmap for your business's future growth and development.

With dedication, persistence, and a well-crafted business plan, you can secure the funding you need to bring your business vision to life. Good luck, and here's to your success!

• Writing Your Business Plan
• Funding Your Business

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Every business owner can benefit from writing a business plan, including those in the early stages of launching a business . A well-crafted business plan communicates the business’s strategy for growth to key leaders and investors. It’s also an important step to getting a business loan since many lenders require it.

Let’s walk through the steps and elements of writing your ideal business plan.

Key takeaways

• A business plan outlines how you plan to bring products or services to market
• Many lenders require a business plan be included with a loan application
• You can choose to write a lean or traditional business plan
• It covers everything from market research to your marketing and financial plan.

What is a business plan?

A business plan is a document that outlines a business’s strategy for bringing a product or service to market. It describes the company, product idea and goals or steps that the business will take to achieve growth. The document includes multiple sections that provide insight into each part of the strategy.

The business plan can be a simple document called a lean business plan or a more detailed traditional business plan. The lean business plan covers the basics of the company, product, target customers and how it will get revenue. It may only be one page with short descriptions for each part.

The traditional business plan includes more depth on the goals, measurements, research and marketing strategies to get the business where it’s going. Here are key differences in the information written for each type of business plan:

Although there’s no one-size-fits-all approach, follow these steps to create a strong business plan.

Write an executive summary

An executive summary is the introduction to a business plan, giving the key details about your business model and the product or service you’re offering. While there’s no strict formula for writing this section, you should include all the relevant details that you’d want a key partner or investor to know.

It should describe your product or service idea, target market and key objectives for growth within the next few years. It may also summarize your marketing and sources of revenue or funding.

You can adjust what to include based on the exact business you’re starting and its business model. Most business plans keep the executive summary to one to two pages.

Create a company description

The company description should overview important details about your company. It can state your company’s name, location and type of entity as well as describe its history. It should also clearly define the vision that you have for your company’s future in the form of a mission or vision statement.

You may also outline the structure for managing the business, listing key roles and responsibilities and the people filling those roles. Depending on the details you included in the executive summary, you might include information about your product or service.

Describe your value proposition

The value proposition is your chance to pitch what makes your business stand out. It identifies the customer’s problem or gap in the market for the product or service you’re offering. It then goes into detail about how your business will solve the problem.

The value proposition can also explain major barriers that customers have before making a decision and what your business will do to break through those barriers. It shows leaders and investors that you have a thoughtful purpose behind the business you’re creating.

State your business goals

The path to achieving success starts with knowing what success looks like. Many business plans state its main objectives in the company description. Others describe those goals in a separate part of the business plan to dive deeper into the specific goals.

You can also include key measurements you’ll use to gauge whether your business is achieving its goals. You would then use these goals in other business planning documents, further breaking them down into defined short-term steps that ladder up to the larger goals.

Outline your product and service

Next, you want to dive into the main product or service that your business is offering. Explain what the product is, how it works and the benefits that it brings to customers. If you’re planning to make multiple products, you can include a description of each product line. Show how this product or service is set apart from similar products from competitors.

You can also use this section to show how the product or service is produced, including cost of supplies and the price at which you plan to sell. Let the investors and stakeholders know if you have a trademark or patent for the products you’re creating.

Give a summary of market research

Next comes market research, the part of the plan where you do your due diligence to gather information and understand your target customers and competitors. First, you want to understand your target customers’ needs and any barriers they might have to buying your product.

You want to look for information about their demographics and how they might respond to the product you’re offering. This information will help you when designing your product and marketing it in a way that resonates with customers.

Then, you can look at the economy around your product, such as average pricing and sales revenue. This also includes research about your competitors, the market share that they hold and the barriers to entering your market. This section may include data from data research companies, surveys, focus groups and interviews.

According to the U.S. Small Business Administration , the questions you’re trying to answer include:

• Market size, or how many people may want to buy your product
• What people are willing to pay for your product
• Similar products already available
• Who your competitors are
• How your industry is doing
• Typical revenue gained by small businesses in your industry

Summarize a marketing strategy

Once you’ve clearly defined your product and who you’re selling to, you can come up with a strategy for how you’ll reach and sell to customers. In this section, you’ll include the different marketing channels you’ll use to promote your products and services.

These may include direct mailers, social media, traditional or online advertising or media events. The exact channels you use will depend on where you can easily find your target customers.

You can also describe the key messaging that you plan to use during marketing, which will pinpoint the value that it offers to customers. The marketing plan should also include the cost of marketing to different channels and your marketing budget. You can then outline the marketing goals and measurements you’ll use to see if you’re meeting those goals.

Create a logistics and operations plan

The logistics and operations section of your business plan is a detailed description of how your business will bring products and services to market. It explains how the business will run on a day-to-day basis. It should highlight your company’s management structure, give an overview of processes and describe the workflow from end to end. It can also include data on how many products you can make or how long it will take to make products or offer services.

Create a financial plan

Now that you’ve laid out the research, goals and planning, you can use that information to forecast revenue and build a financial plan. Use any past revenue or sales history as a starting point. Then, refer to your company’s recent growth and goals to calculate future financial growth.

If you’re a startup , you can use market research to estimate revenue for a startup in your industry. You can either forecast revenue manually or find software that projects revenue for you.

In your financial plan, you also want to create and track your business budget . You’ll track your estimated and actual revenue, updating regularly to keep the revenue forecast accurate and realistic. Next, you’ll list all expenses and their amounts, including one-time, variable, fixed or seasonal expenses. Here are some examples of different business expenses:

• One-time or capital expenses: Equipment, real estate, furniture, commercial vehicles, business licenses
• Variable expenses: Inventory, utilities, fuel, office supplies, shipping services, card processing fees
• Fixed expenses: Employee salaries and benefits, software, web hosting, office or equipment leases, business loan repayments

Business plan resources

Writing your business plan will take more than putting pen to paper. Try these resources to help you gather data, set up your finances and more:

• Business plan templates. Creating a business plan for the first time? Learn by looking up examples of other business plans or templates like these from Smartsheet .
• Software for accounting and financial planning. Many small businesses use Quickbooks, Xero or Netsuite to track revenue and expenses. These may also forecast revenue based on sales history.
• Business loan resources. To cover your funding needs, think through the types of business loans that would best serve your business. Once you’ve landed on a loan, compare features and interest rates to help you make a decision.
• Survey tools. For in-depth market research, you can build a survey and send to your target customers through a data research company like GWI.

Small business mentoring

Experienced mentors can guide you to making effective business decisions and unlock new potential for growth. Where to find small business mentors:

• SBA. You can find resources and free or low-cost mentors through the SBA’s local assistance tool .
• Small Business Development Centers. SBDCs provide specialized training programs in your local area covering specialized topics like marketing, data research and business management.
• Community Development Financial Institutions. CDFIs   are financial organizations like banks and credit unions that are built to develop the community. Alongside banking and lending services, CDFIs offer training programs and resources.
• SCORE. SCORE is an organization that partners with the SBA to bring resources to small business owners. Mentorship is at the core of what the organization does, and it can match you with a local mentor through its online locator tool.
• Local Chamber of Commerce. These local organizations are known for supporting business networking. They may help you find a mentorship program, or you may build a relationship with another successful entrepreneur through networking events.
• Nonprofit organizations. Some nonprofit organizations are dedicated to supporting small business owners with funding, trainings and mentorship programs. These are typically local programs. For example, NYPACE is a nonprofit that offers free consulting to underserved entrepreneurs in New York.

Bottom line

Your business plan should outline key information about your company, products and the strategy for getting those products in the hands of your customers. Every business plan looks different, but there is essential information to include in every plan, such as who your target customer is and your expected revenue. The business plan serves to help you get business funding and outline exact goals and steps to growing your company.

Frequently asked questions

Do i need a business plan to apply for a business loan, how do i write a simple business plan, what basic items should be included in a business plan, related articles.

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How to create a business budget

How to get a business loan in 6 steps

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How to Write a Business Plan for a Loan

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Reading Time : 9 Min

Business plan 101.

Introduction

Securing a loan for your business can be a game-changer, providing the capital needed to start, expand, or stabilize operations. But to get that loan, you’ll need a compelling business plan that convinces lenders of your business’s potential and reliability. In this comprehensive guide, we’ll walk you through the process of crafting a winning business plan tailored for loan approval. Whether you’re a startup seeking initial fund raising or an established business in need of financial support, these steps will help you create a roadmap for success.

Understanding Your Business Needs

Determining the Purpose of the Loan

Before diving into the intricacies of your business plan, you must first understand the purpose of the loan. Be specific about why you need financing. Is it for startup capital, expansion, working capital, or a particular project? Identifying the exact purpose sets the foundation for the rest of your plan.

Assessing How Much Capital Is Required

Once you’ve pinpointed the purpose, assess how much capital is needed to achieve your goals. This calculation should include both the immediate requirements and any contingencies. Accurate financial projections play a crucial role in this step.

Identifying the Specific Uses of the Loan Funds

In your business plan, clearly outline how the loan funds will be used. Break down the allocation of funds, whether it’s for equipment purchase, hiring staff, marketing efforts, or debt consolidation. Providing this level of detail demonstrates your financial prudence.

Executive Summary

The executive summary is your opportunity to make a powerful first impression on lenders. This concise section should encapsulate your business’s essence and your loan request.

Crafting a Concise Overview

Begin with a succinct overview of your business, including its mission and a brief description. Clearly state the loan amount you’re seeking and the purpose of the loan. Remember, lenders often use the executive summary as a screening tool, so make it engaging and compelling.

Key Components of an Effective Executive Summary

A well-crafted executive summary includes vital information, such as your business’s history, its growth potential, financial highlights, and the qualifications of your management team. Each sentence should serve the purpose of convincing lenders to read further.

Capturing the Lender’s Attention

Your executive summary should be compelling enough to make lenders want to learn more about your business. Craft it carefully, as it’s the first thing they’ll see. Make sure it hooks them right from the start.

Business Description

In this section, provide an in-depth look at your business.

Providing an In-Depth Look at Your Business

Start by offering insights into your business’s history, its legal structure, location, and ownership. Highlight any unique achievements, milestones, or recognition your business has received.

Discussing Your Industry, Market, and Target Audience

Delve into your industry and market. Share your market research findings, including industry trends, market size, and demographics of your target audience. Showcase your understanding of the competitive landscape.

Explaining Your Business’s Unique Value Proposition

Clearly articulate what sets your business apart from competitors. Explain how your products or services fulfill a specific need or solve a problem for your target customers. Emphasize your unique value proposition.

Market Analysis

This section requires thorough market research and analysis.

Conducting Thorough Market Research

Explain the methods and sources you used to gather market data. This could include surveys, industry reports, or competitor analysis. Cite relevant statistics and sources to support your claims.

Analyzing Industry Trends and Competition

Interpret the data you’ve collected. Identify opportunities, threats, and gaps in the market. Discuss how your business plans to capitalize on these insights. Provide a detailed analysis of your competitors, highlighting their strengths and weaknesses.

Demonstrating a Solid Understanding of Your Market

Summarize your market analysis by showcasing key insights. Discuss the growth potential of your industry, significant challenges, and your business’s positioning within this landscape. Use data and statistics to support your arguments.

Organization and Management

This section introduces your business’s structure and team.

Detailing Your Company’s Structure

Provide an organizational chart or a description of how your business is structured. Explain the hierarchy, roles, and reporting relationships within your organization.

Introducing Key Team Members and Their Roles

Highlight the qualifications, experiences, and contributions of your management team. Explain why they are well-equipped to drive the business forward. Include resumes or profiles as appendices.

Highlighting Your Team’s Qualifications

Emphasize the educational backgrounds, relevant industry experience, and any notable achievements of your team members. This builds credibility and trust with lenders.

Products or Services

This section focuses on what your business offers.

Describing Your Offerings

Provide a detailed description of your products or services. Explain their features, benefits, and pricing structures. Use clear and concise language to ensure lenders understand what you offer.

Emphasizing the Benefits to Customers

Articulate how your offerings solve problems or fulfill needs for your customers. Highlight the unique selling points that make your products or services attractive.

Discussing Product/Service Development and Innovation

If applicable, discuss your plans for product or service development and innovation. Show that you’re forward-thinking and prepared to adapt to changing market demands.

Marketing and Sales Strategy

This section outlines your approach to reaching and retaining customers.

Outlining Your Marketing Plan

Explain your marketing strategies, including digital marketing, traditional advertising, public relations, and social media. Discuss how you plan to raise brand awareness and attract potential customers.

Defining Your Sales Strategy and Channels

Detail your sales strategy. Describe the channels you’ll use to reach your target audience. Discuss your sales team’s role if you have one. Explain how you intend to convert leads into customers.

Demonstrating How You’ll Attract and Retain Customers

Elaborate on your customer acquisition strategies and retention efforts. Discuss loyalty programs, customer relationship management, or any other initiatives aimed at ensuring customer satisfaction and repeat business.

Funding Request

In this section, specify the loan amount you’re seeking and how you plan to use it.

Specifying the Loan Amount You’re Seeking

Clearly state the exact amount of funding you’re requesting. Explain why this amount is necessary to achieve your business objectives.

Explaining How the Funds Will Be Used

Provide a breakdown of how the loan funds will be allocated. Be specific about which aspects of your business will benefit from this investment. This level of transparency demonstrates responsible financial planning.

Providing a Clear Repayment Plan

Discuss the terms of loan repayment, including interest rates, repayment periods, and any collateral you’re offering as security. Lenders want assurance that their investment will be repaid on schedule.

Financial Projections

This section focuses on creating realistic financial forecasts.

Creating Realistic Financial Forecasts

Explain the process of developing financial projections. This includes sales forecasts, income statements, balance sheets, and cash flow projections. Stress the importance of basing these projections on thorough research and realistic assumptions.

Including Income Statements, Balance Sheets, and Cash Flow Projections

Provide samples of these financial statements, highlighting key metrics such as revenue, expenses, assets, liabilities, and cash flow. Explain the significance of each statement in assessing your business’s financial health.

Discussing Your Assumptions and Methodology

Transparently present the assumptions that underlie your financial projections. Discuss the methodology you used to arrive at these numbers. Lenders need to trust the accuracy and reliability of your financial data.

Risk Assessment

Identify potential risks and demonstrate your strategies for mitigating them.

Identifying Potential Risks and Challenges

Discuss the major risks your business may face, whether they’re industry-specific, economic, or internal. Lenders appreciate your candid assessment of potential pitfalls.

Demonstrating Your Risk Mitigation Strategies

Outline concrete steps you’ll take to mitigate the identified risks. This reassures lenders that their investment is protected and that you have contingency plans in place.

Reassuring Lenders of Your Ability to Handle Adversity

Emphasize your business’s resilience by sharing past experiences of successfully navigating challenges. Highlight your ability to adapt and thrive even in adverse conditions.

Include supplementary documents and data to support your business plan.

Including Supplementary Documents and Data

List the additional documents that support your business plan. These might include resumes of key team members, market research data, legal documents, or letters of recommendation. Provide context for why each document is included.

Examples Might Include Resumes, Market Research, or Additional Financial Information

Offer examples of what these supplementary documents might look like and how they strengthen your case. Show that you’ve done your due diligence in preparing a comprehensive plan.

Tips for a Successful Loan Application

In this section, offer practical advice on presenting your plan.

Offering Practical Advice on Presenting Your Plan

Share tips on creating a visually appealing and well-organized document. Discuss formatting and design considerations, ensuring that your business plan is easy to navigate.

Discussing Common Mistakes to Avoid

Highlight common pitfalls that applicants should steer clear of, such as overestimating sales projections or downplaying risks. Addressing these mistakes proactively can enhance your credibility.

Highlighting the Importance of Preparation

Stress the value of meticulous preparation. Encourage applicants to double-check financial data, rehearse their presentations, and seek feedback from mentors or advisors.

In conclusion, crafting a business plan for a loan is a strategic endeavor that can significantly impact your business’s future. It’s not merely a document; it’s your roadmap to success and a testament to your commitment to financial prudence. By following the steps outlined in this guide, backed by thorough research, realistic financial projections, and a clear vision, you can present a compelling case to lenders. Remember, a well-structured business plan not only increases your chances of securing a loan but also sets the stage for your business’s growth and prosperity.

At Stellar Business , we understand the importance of a strong business plan in obtaining financing. Our team of experts can provide personalized guidance and support to help you create a business plan that stands out to lenders. Contact us today to learn more about how we can assist you in achieving your business goals.

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Updated On : September 3, 2023

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How To Write A Business Plan for A Bank Loan (3 Key Steps)

Wondering how to create a business plan that will wow your banker.

You're not alone.

Most entrepreneurs see writing a business plan as a gargantuan task – especially if they've never written one before.

Where do you start?

How do you calculate the financials?

How can you be sure you're not making a mistake?

And if you need a business plan for a bank loan, getting this document right is absolutely essential.

So here's what we recommend: simplify the planning process by breaking the work up into manageable, bite–sized steps. That way, you can focus on one section at a time to make sure it's accurate.

Here's a quick overview of the step–by–step process we guide entrepreneurs through when they sign up for LivePlan.

Step 1: Outline The Opportunity

This is the core of your business plan. It should give loan officers a clear understanding of:

• What problem you're solving
• How your product or service fits into the current market
• What sets your business apart from the competition

There are three key parts to this step:

The Problem & Solution

Detail exactly what problem you are solving for your customers. How do their lives improve after you solve that “pain point” for them?

We recommend actually going out and chatting with your target audience first. That way, you can validate that you're solving a real problem for your potential customers.

Be sure to describe your solution in vivid detail. For example, if the problem is that parking downtown is expensive and hard to find, your solution might be a bike rental service with designated pickup and dropoff locations.

Target Market

Who exactly are you selling to? And roughly how many of them are there?

This is crucial information for determining whether or not your business will succeed long–term. Never assume that your target market is “everyone.”

For example, it would be easy for a barber shop to target everyone who needs a haircut. But most likely, it will need to focus on a specific market segment to reach its full business potential. This might include catering to children and families, seniors or business professionals.

Competition

Who are your direct competitors? These are companies that provide similar solutions that aim to solve your customers' pain points.

Then outline what your competitive advantages are. Why should your target market choose you over the other products or services available?

Think you don't have any competition? Think again. Your customers are likely turning to an indirect competitor that is solving their problem with a different type of solution.

For example: A taco stand might compete directly with another taco stand, but indirectly with a nearby hot dog vendor.

Boost your chances of securing a loan

See how LivePlan can help you write a fundable business plan

Step 2: Show how you'll execute

This is where the action happens! Here you'll get into the details of how you'll take advantage of the opportunity you outlined in the previous section. This part demonstrates to banks that you have a strong plan to achieve success.

The three main components of this step include:

Marketing & Sales Plan

There can be a lot of moving parts to this one, depending on your business model.

But most importantly, you'll need to fully explain how you plan to reach your target market and convert those people into customers. A few example of what should be included:

• Positioning strategy. What makes your business both unique and highly desirable to your target market?
• Marketing activities. Will you advertise with billboards, online ads or something else entirely?
• Pricing. What you charge must reflect consumer demand. There are a few models to choose from, including ‘cost–plus pricing’ and ‘value pricing.’

This is the nuts and bolts of your business. It's especially important for brick–and–mortar companies that operate a storefront or have a warehouse.

You may want to explain why your location is important or detail how much space you have available. Plan to work at home? You can also cover your office space and any plans to move outside your house.

Any specialized software or equipment and tools should also be covered here.

Milestones & Metrics

Lenders and investors want to be confident that you know how to turn your business plans into financial success. That's where your milestones come in.

These are planned goals that help you progress your company. For example, if you're launching a new product your milestones may include completing prototypes and figuring out manufacturing.

Metrics are how you will gauge the success of your business. Do you want to generate a certain level of sales? Or keep costs at a certain level? Figuring out which metrics are most important and then tracking them is essential for growth.

Step 3: Detail your financial plan

This is the most crucial – and intimidating – part of any business plan for a bank loan. Your prospective lender will look especially close at this section to determine how likely your business is to succeed.

But the financial section doesn't have to be overwhelming, especially if you break the work into smaller pieces. Here are 3 items that your plan must have:

Simply put, this is your projections for your business finances. It gives you (and the bank) an idea of how much profit your company stands to make. Just a few items you'll need to include:

• Revenue. List all your products, services and any other ways your business will generate income.
• Direct costs. Or in other words, what are the costs to make what you sell?
• Personnel. Salaries and expenses related to what you pay yourself, employees and any contactors.
• Expenses. Things like rent, utilities, marketing costs and any other regular expenses.

Exactly how will you use any investments, loans or other financing to grow your business? This might include paying for capital expenses like equipment or hiring personnel.

Also detail where all your financing is coming from. Lines of credit, loans or personal savings should be listed here.

Bankers will be giving this section a lot of attention. Here's what you'll need:

• Profit & Loss. This statement pulls in numbers from your sales forecast and other elements to show whether you're making or losing money.
• Projected Balance Sheet. This is likely the first thing a loan officer will look at: it covers your liability, capital and assets. It provides an overview of how financially sound your business is.
• Projected Cash Flow. Essentially, this statement keeps track of how much money you have in the bank at any given point. Loan officers are likely to expect realistic monthly cash flow for the next 12 months.

Don't forget the Executive Summary

The Executive Summary is the first section of your business plan, but we recommend you tackle it last.

It's basically an introduction to your company, summarizing the main points of your plan. Keep it to just one or two pages and be as clear and concise as possible.

Think of it as a quick read designed to get the lender excited about your business.

If you need help writing your plan

Not everyone feels confident writing a business plan themselves, especially if it's needed to secure a bank loan.

And although you don't need an MBA to write one, getting your business plan right often does require quite a bit of work. So if you need help writing your plan, here are two options to consider:

• Hire a professional business plan writer to do it for you. This is typically the most expensive route, but worth it if you're pursuing $100,000 or more in capital.
• Sign up for LivePlan. It's business planning software that walks you through a step–by–step process for writing any type of plan. It's an affordable option that also gives you an easy way to track your actuals against your business plan, so you can get the insights you need to grow faster.

LivePlan makes it easy to write a winning business plan

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How to Write an SBA Business Plan + Template

Noah Parsons

10 min. read

Updated November 21, 2023

Applying for a Small Business Administration loan typically requires a business plan.

Unfortunately, there’s no SBA loan business plan format that guarantees approval. The SBA even states you should “pick a business plan format that works for you.” 

While I agree with this sentiment, I’ve found that entrepreneurs who explain how funds will be used and how they will repay the loan tend to be more successful. 

Luckily, these details can be covered using our SBA-lender-approved business plan format . I’ll go over that structure in this article, and focus on the sections that the SBA prioritizes, so you can maximize your chances of getting funded .

You can even download a free SBA-lender-approved business plan template to fill out as you read. 

Let’s get started.

• Why you need a business plan for SBA loans

SBA loans require good documentation of your business and personal finances. You’ll need to pull together your past tax returns, bank statements, and various application forms depending on the type of SBA loan you apply for.

The bank issuing the loan will also want to know about the future of your business. 

They’ll want to see how the loan will be used and if future cash flow projections are realistic and indicate you can afford loan payments.

That’s where writing an SBA business plan comes in. 

Not only will your business plan describe your business to the lender, but it will include the financial projections the bank will use to determine if you qualify for the loan .

• What your business plan should include, according to the SBA

Business plans for SBA loans follow a fairly standard structure, but that doesn’t mean you need to follow it exactly. 

The SBA even recommends adjusting the plan outline to serve your needs. If a section does not apply to your business, it’s fine just to remove it.

Here’s the successful business plan structure I recommend for SBA loans:

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1. Executive summary

A great executive summary is a short, simple overview of your business. It should be easy for a loan officer to read and clearly understand what your business does. 

When applying for an SBA loan, highlight your: 

• Business opportunity
• Financial forecast
• How much money you want to borrow and how it will be used

Remember, an executive summary should be short and to the point. The rest of your business plan will provide additional details.

[Dig deeper: How to write an executive summary ]

2. Company description

Some people call this section “Products and Services.” Either option is fine. The important thing is that you use this section to explain what your business opportunity is. 

You need to cover: 

• The problem you solve
• Who you’re solving it for
• What your solution is and why it’s better

Be specific and tell the story of your business and your customers. Focus on your strengths and what sets you apart from competitors. 

If your company is developing a product, include information on:

• What the product life cycle looks like
• Intellectual property filings
• Current research and development

If these topics don’t apply to your product, that’s fine. Just be sure that the description of what you sell is clear.

3. Market analysis

The market analysis chapter explains who your customers are. It provides an overview of your target market, competition, and industry.

Your target market is essentially a description of your ideal customers. Be sure to include specific demographic information (like age, gender, location, income) and psychographic information (hobbies, purchasing behaviors). 

This data should reinforce that your target market needs your solution .

It’s helpful to also include information on the size of your target market . Lenders will want to see evidence of enough potential customers to drive growth. 

While your target market information describes your customers, an industry overview discusses the type of business you’re in and its potential for growth. 

For example: If you’re starting a fast-casual restaurant, your industry overview might discuss the increased interest in fast-casual dining and how more people are eating in these types of restaurants every year. 

Finally, you’ll need to include a competitive analysis . This is a list of current competitors and alternatives, with explanations of why your business is a better option. 

Your goal is to show how your business is unique, what opportunities and threats there are, and how you plan to address the competition.

4. Organization and management

Also known as your company overview, this section is where you describe your legal structure, history, and team .

For your SBA loan application, you should focus on describing who is managing the business as clearly as possible. 

You may want to include an organizational chart. You should provide detailed resumes for everyone in leadership positions. Each team member’s experience, skills and professional qualifications can mitigate risk in the eyes of a lender .

To show you’re thinking ahead, it’s also helpful to include key positions you plan to fill as you grow. 

5. Sales and marketing plan

Your goal in this section is to summarize how you will attract, retain, and sell to your customers.

The marketing strategies and sales methods you describe should always have the customer top of mind, and demonstrate that you know how to connect with them. 

To help a loan officer visualize this, you can provide examples of marketing messaging, visuals, and promotions. If you have any research or results to show that your strategy has merit, include those as well. 

6. Financial projections

SBA lenders typically require 5 years of financial projections — including profit and loss statements , balance sheets , and cash flow statements . 

Be sure to include the SBA loan in your projections in the following areas: 

• A liability on your balance sheet.
• Payments on your cash flow.
• Interest expenses on your profit and loss statement. 

I’ll dive into specific details of what you should focus on in the “how to improve your chances” section.

Your first year of financial projections should include monthly details. After that, annual summaries are usually sufficient for most SBA lenders. Occasionally, a lender might require 24 months of monthly projections, so check with your bank before submitting your business plan. 

If your business is up and running, you must also provide historical financial reports for the past 12-24 months of operations—including income statements and a current balance sheet.

Typically, you will also need to provide reports on your personal finances , including any assets you have, such as a home or car. 

Finally, include a section explaining your use of funds—what exactly you plan to use the loan for.

7. Appendix

The appendix is your chance to provide additional documents that support sections of your business plan. 

When applying for a loan, these may include:

• Employee resumes
• Licenses and permits
• Patents and other legal documents
• Historical financial statements
• Credit histories

Don’t worry about stuffing your appendix full of additional documentation. Only include information if you believe it will strengthen your approval chances, or if your lender specifically asks for it.

• How to improve your chances of being approved for an SBA loan

Your SBA business plan needs to focus on the loan you are applying for and how that will impact your business financially. 

Make sure to include the following information in your financial plan to increase your chances of success with your lender:

Funding request 

In your executive summary, document how much money you are asking for. It’s best to put your number where it can be clearly read, instead of trying to bury it deep within your business plan.

Remember, there are limitations to how much you can borrow through SBA-backed loans.  Most have a maximum loan amount of $5 million, while SBA Express loans have a maximum loan amount of $350,000. 

Use of funds

You should also describe how you plan to use the loan and which aspects of the business you want to invest in. 

Some SBA loans are designed specifically for expanding export businesses or funding real estate transactions. So, make sure your use of funds description is appropriate for the loan you are applying for.

Cash flow forecast

Be sure to include the loan in your cash flow statements and projections . You want to demonstrate that you’ve planned how you will use and repay the loan.

You need to show:

• When you anticipate receiving the loan.
• How the loan will impact your finances. 
• Loan payments for the life of the loan. 

Having this prepared won’t just increase the chances of your application being approved—It  will make it much easier to manage the loan after you receive funding . 

Balance sheet 

You’ll also want to put the loan on your projected balance sheet , and show how the loan will get paid down over time. 

The money you owe will show up on your balance sheet as a liability, while the cash you receive from the loan will be an asset. Over time, your forecasted balance sheet will show that the loan is getting paid back. 

Your lender will want to see that you have forecasted this repayment properly.

Profit & Loss forecast

Your P&L should include the interest expenses for the loan, and show how the interest will impact your profitability in the coming months and years.

• How long does an SBA business plan need to be?

The SBA doesn’t have an official recommended or required business plan length . As a general rule of thumb, you should make your business plan as short and concise as possible. 

Your business plan is going to be reviewed by a bank loan officer, and they will be less than excited about the prospect of reading a 50-page business plan.

If possible, keep the written portion of your business plan between 10-15 pages. Your financial forecasts will take up several additional pages. 

If you’re struggling to keep it short, try a one-page plan

A great way to start your business plan is with a simple, one-page business plan that provides a brief and compelling overview of your business. 

A good one-page plan is easy to read and visually appealing. Once you have your one-page plan, you can expand on the ideas to develop your complete written business plan, and use the one-page plan as your executive summary. 

Loan officers will appreciate a concise overview of your business that provides the summary they need before they start looking at your complete business plan and financial plan .

• Resources and tools for writing an SBA business plan

Remember, you can download a free SBA-lender-approved business plan template . It includes detailed instructions to help you write each section, expert guidance and tips, and is formatted as lenders and investors expect.

If you’re looking for a more powerful plan writing tool, one that can also help you create financial forecasts for the use of your loan, I recommend you check out LivePlan . 

With LivePlan, you get:

• AI-powered recommendations: Generate and rewrite sections of your plan to be more professional and persuasive.
• Step-by-step instructions: In-app examples, tutorials, and tips to help you write an impressive business plan.
• Automatic financials: Skip the spreadsheets and complex formulas, and quickly create accurate financial forecasts with everything a lender needs.
• A built-in pitch presentation: Print or share your full business plan, one-page pitch, and financial reports—all with a professional and polished look.

Whether you use the template, LivePlan, or try writing a business plan yourself, following the structure and tips from this article will improve your chances of getting an SBA-backed loan. 

And for additional SBA-focused resources, check out our guide on how to get an SBA loan .   

Create a business plan that maximizes your chances of securing funding

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

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What is a business plan?

1. write an executive summary, 2. describe your company, 3. state your business goals, 4. describe your products and services, 5. do your market research, 6. outline your marketing and sales plan, 7. perform a business financial analysis, 8. make financial projections, 9. summarize how your company operates, 10. add any additional information to an appendix, business plan tips and resources.

A business plan outlines your business’s financial goals and explains how you’ll achieve them over the next three to five years. Here’s a step-by-step guide to writing a business plan that will offer a strong, detailed road map for your business.

ZenBusiness

A business plan is a document that explains what your business does, how it makes money and who its customers are. Internally, writing a business plan should help you clarify your vision and organize your operations. Externally, you can share it with potential lenders and investors to show them you’re on the right track.

Business plans are living documents; it’s OK for them to change over time. Startups may update their business plans often as they figure out who their customers are and what products and services fit them best. Mature companies might only revisit their business plan every few years. Regardless of your business’s age, brush up this document before you apply for a business loan .

» Need help writing? Learn about the best business plan software .

This is your elevator pitch. It should include a mission statement, a brief description of the products or services your business offers and a broad summary of your financial growth plans.

Though the executive summary is the first thing your investors will read, it can be easier to write it last. That way, you can highlight information you’ve identified while writing other sections that go into more detail.

» MORE: How to write an executive summary in 6 steps

Next up is your company description. This should contain basic information like:

Your business’s registered name.

Address of your business location .

Names of key people in the business. Make sure to highlight unique skills or technical expertise among members of your team.

Your company description should also define your business structure — such as a sole proprietorship, partnership or corporation — and include the percent ownership that each owner has and the extent of each owner’s involvement in the company.

Lastly, write a little about the history of your company and the nature of your business now. This prepares the reader to learn about your goals in the next section.

» MORE: How to write a company overview for a business plan

The third part of a business plan is an objective statement. This section spells out what you’d like to accomplish, both in the near term and over the coming years.

If you’re looking for a business loan or outside investment, you can use this section to explain how the financing will help your business grow and how you plan to achieve those growth targets. The key is to provide a clear explanation of the opportunity your business presents to the lender.

For example, if your business is launching a second product line, you might explain how the loan will help your company launch that new product and how much you think sales will increase over the next three years as a result.

» MORE: How to write a successful business plan for a loan

In this section, go into detail about the products or services you offer or plan to offer.

You should include the following:

An explanation of how your product or service works.

The pricing model for your product or service.

The typical customers you serve.

Your supply chain and order fulfillment strategy.

You can also discuss current or pending trademarks and patents associated with your product or service.

Lenders and investors will want to know what sets your product apart from your competition. In your market analysis section , explain who your competitors are. Discuss what they do well, and point out what you can do better. If you’re serving a different or underserved market, explain that.

Here, you can address how you plan to persuade customers to buy your products or services, or how you will develop customer loyalty that will lead to repeat business.

Include details about your sales and distribution strategies, including the costs involved in selling each product .

» MORE: R e a d our complete guide to small business marketing

If you’re a startup, you may not have much information on your business financials yet. However, if you’re an existing business, you’ll want to include income or profit-and-loss statements, a balance sheet that lists your assets and debts, and a cash flow statement that shows how cash comes into and goes out of the company.

Accounting software may be able to generate these reports for you. It may also help you calculate metrics such as:

Net profit margin: the percentage of revenue you keep as net income.

Current ratio: the measurement of your liquidity and ability to repay debts.

Accounts receivable turnover ratio: a measurement of how frequently you collect on receivables per year.

This is a great place to include charts and graphs that make it easy for those reading your plan to understand the financial health of your business.

This is a critical part of your business plan if you’re seeking financing or investors. It outlines how your business will generate enough profit to repay the loan or how you will earn a decent return for investors.

Here, you’ll provide your business’s monthly or quarterly sales, expenses and profit estimates over at least a three-year period — with the future numbers assuming you’ve obtained a new loan.

Accuracy is key, so carefully analyze your past financial statements before giving projections. Your goals may be aggressive, but they should also be realistic.

NerdWallet’s picks for setting up your business finances:

The best business checking accounts .

The best business credit cards .

The best accounting software .

Before the end of your business plan, summarize how your business is structured and outline each team’s responsibilities. This will help your readers understand who performs each of the functions you’ve described above — making and selling your products or services — and how much each of those functions cost.

If any of your employees have exceptional skills, you may want to include their resumes to help explain the competitive advantage they give you.

Finally, attach any supporting information or additional materials that you couldn’t fit in elsewhere. That might include:

Licenses and permits.

Equipment leases.

Bank statements.

Details of your personal and business credit history, if you’re seeking financing.

If the appendix is long, you may want to consider adding a table of contents at the beginning of this section.

How much do you need?

with Fundera by NerdWallet

We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

Here are some tips to write a detailed, convincing business plan:

Avoid over-optimism: If you’re applying for a business bank loan or professional investment, someone will be reading your business plan closely. Providing unreasonable sales estimates can hurt your chances of approval.

Proofread: Spelling, punctuation and grammatical errors can jump off the page and turn off lenders and prospective investors. If writing and editing aren't your strong suit, you may want to hire a professional business plan writer, copy editor or proofreader.

Use free resources: SCORE is a nonprofit association that offers a large network of volunteer business mentors and experts who can help you write or edit your business plan. The U.S. Small Business Administration’s Small Business Development Centers , which provide free business consulting and help with business plan development, can also be a resource.

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The Bottom Line

• Personal Loans

How to Start a Personal Loan Business

Before you start a moneylender business, learn more about what’s involved

If you’re hoping to start a business , one of the most profitable is offering personal loans to others. However, getting the startup cash and investors required can be challenging.

Before you decide to start a personal loan business, it’s important to understand the ins and outs and be prepared for potential setbacks.

Key Takeaways

• A personal loan business can be flexible and profitable.
• You need investors to back a personal loan business, and it can be challenging to find them.
• It’s important to prepare ahead of time with paperwork, including loan documents.
• Federal, state, and local laws can make starting a personal loan business challenging, and you should review necessary information before moving forward.

Decide Whether a Personal Loan Business Is Right for You

Before you move forward with a personal loan business, you need to decide if it’s the right path for you. There are different potential ways to move forward with a personal loan business. Some potential options include:

• Your own money : You lend your own money to others. You can choose to provide secured loans or unsecured loans . However, you need to have a large amount of capital to get started, since you’re using your own money to move forward. In this case, though, you keep all the interest paid on the loan and can charge what fees you wish.
• Investor money : With this type of business, investors provide you with the funds to make loans. The investors receive the interest from the payments, and you receive compensation in the form of a loan fee charge at origination.
• Peer-to-peer (P2P) lending : Rather than directly lending money, you provide the means to connect borrowers and lenders . You might do it through an app or website. You take a cut of the deal but aren’t putting up your own money to get started.

A personal loan business can be profitable since you have the chance to earn money upfront from origination and administration fees. Plus, depending on how you set up your business, you might be able to benefit from the interest earned on repayments .

On the other hand, though, you have to be prepared to shoulder some of the risks. If a borrower misses payments or defaults , you could lose money—especially if you’re lending out your own money.

Don’t forget to consider the market potential as well. Loans are popular, and it’s possible to find customers all over the world. Even so, the industry has slowed in recent years, and there are concerns that increased scrutiny for moneylenders could lead to more challenges for those who want to start a personal loan business.

Pros and Cons of a Personal Loan Business

Potential for good profits, including upfront cash flow from charging fees

Flexible business model that can be managed from home if you choose

Customers available from a variety of markets, since many people need loans

Regulations can differ at the federal, state, and local levels, and it’s hard to predict how you need to comply.

It can be difficult to get enough capital to start, whether you use your own money or look for investors.

Growth in the installment loan industry has been slowing in the last few years.

Make sure to carefully consider the pros and cons of a personal loan business before you get started. Realize that regulations and the need for capital can make this a challenging business, even if you have the potential to make a good profit.

Don’t forget that heavy regulation at various levels of government can regulate how you collect interest, who you can lend to, and other aspects of personal loans. Working through the different regulations can be challenging, and it’s important to remember that financial services come with a lot of red tape. In fact, it’s important to note that there’s no one-size-fits-all approach to a moneylender business. You probably won’t be able to take one business template from one place and apply it to the same loan business in another location.

Next, you need to create a business plan . Unless you’re using your own money to fund the loans you make, you’ll need investors and other backers. Most of them aren’t likely to provide you with the money you need to get started unless you have a good business plan.

Some of the main elements of a business plan include the following:

• Executive summary : This is the overview of your business plan. It provides a way for investors and others to quickly understand the basics of your idea and how you expect to make money. It should be the last thing you write, even though it will be at the beginning of your overall plan.
• Business summary : Describe your business in this section. It should be an overview of what you hope to accomplish with your business and your goals. Key people in your company should be recognized here, along with their skills and what they contribute to the success of your business.
• Products : Be clear about what you’re providing and how you plan to deliver. Make sure you’re clear about the types of loans you’ll provide. This can include whether you plan to focus on microlending , traditional personal installment loans , cash advances , or some other type of loan . You can also share whether you plan to provide options such as allowing co-signers or accepting collateral .
• Market analysis : Next, you need to provide an analysis of your target market and potential demand. You’ll need to back this up with research and have an analysis of what type of growth you can reasonably expect, in addition to potential challenges.
• Competitive analysis : Take a look at your likely competitors in the space. You should be able to compare their strengths and weaknesses to your own and provide an overview of how your product and business will be advantageous compared to your competitors.
• Marketing plan : Provide a marketing plan . How will you reach your target market? What channels will you use, and do you have any promotional strategies? Flesh out a plan to show how you will reach customers and convert them.
• Operations plan : This section is all about logistics . Where will you be located? Will you have offices or operate online? Do you have special equipment or people who can be used to make this business a success?
• Financial plan : Don’t forget to lay out the numbers. In general, you should plan to have projects for startup costs and the type of investment you’ll need. Provide profit and loss estimates, and detail your expected cash flow . You should be able to estimate three to five years.
• Appendix : If you have any supplementary materials and documentation, it should go in this section of your business plan.

Once you have your business plan and a roadmap for the future, you need to form your legal entity. Decide whether you should be a sole proprietor or if it makes sense for you to form a limited liability company (LLC) or some other partnership . You can also form a corporation . An accountant or a business attorney can help you figure out what type of structure makes sense for you.

If you think you’ll hire others to work in the business, or if you have investors who might want to be partners, you’ll need to keep that in mind as you form a legal business entity. Depending on your state, you might need to file articles of organization and register your business with a city or state office.

You’ll need an Employer Identification Number (EIN) from the Internal Revenue Service (IRS) as you move forward. This will be used when you file your business or partnership tax returns . You can go to the IRS website and get an EIN and register your business within a matter of minutes. It’s also possible to complete this step by mail or fax.

One of the most challenging parts of starting a personal loan business is making sure you have the financing you need. If you’re going to loan money, you need a significant amount of capital.

If you’re using investors’ funds, you’ll need to build relationships and convince others to provide you with capital to lend to others. You’ll need to have agreements in place with your backers so that they know how much they can expect, including what types of returns they’re likely to receive.

All of this can require a lot of expense as you consult with lawyers and make sure you’re in compliance with federal, state, and local regulations.

Get the Required Licenses and Permits

Next, you need to figure out what licenses you need to operate a lending business. You might need permits as well, especially if you’re occupying a building. States, counties, and cities might have their own rules. These rules will be based on whether you operate out of your home or another location. Make sure you understand the requirements before you move forward and get the appropriate paperwork filed to operate legally.

Remember, too, that you might have to get certain licenses for financial services, depending on where you operate. Taking the appropriate tests and paying for the licenses can be costly, so evaluate whether this is something you want to pursue.

Don’t forget to set up business accounting. You should have a separate system from your personal finances. You’ll need bookkeeping and payroll for employees. You also need a way to keep track of when borrowers make payments and how much of each payment should go toward the principal and how much should go toward interest. And, if you have investors, your accounting should also take into account what’s going to them.

As a moneylender, you need business insurance to protect you if too many borrowers default or something else happens. Often, you might need business insurance to protect you in the case of lawsuits as well. If you have a building, you’ll need insurance to protect your premises. Don’t forget about workers’ compensation as well. There are many different types of business insurance, and you need to make sure you’re paying for policies that fit your needs and can help protect your assets.

What to Expect When Opening a Personal Loan Business

When you open a personal loan business, you should be prepared to work long hours and be ready to market yourself and your business. It’s also important to make sure you have enough capital available to fulfill the loans you plan to make to others, as well as meet all federal, state, and local regulatory requirements.

Understand how to put processes in place when deciding whom to lend to. Check with local regulations on how to evaluate someone’s creditworthiness and the types of agreements you need to have borrowers sign. Don’t forget that some states have caps on the interest you can charge on loans, so you should know how to set annual percentage rates (APRs) (which include origination and other fees) to be compliant.

You also need to set up payment systems to collect payment (plus interest) from your borrowers. This can include online systems, mail-in, or other arrangements. If you plan to automatically deduct from accounts, you need to have the right agreements in place and get permission for auto-drafts from bank accounts. All of this needs to be done with regulation in mind and best practices for security. You must be prepared to issue account statements to each borrower, showing them how much of each payment is going to the principal and how much is going to interest.

Don’t forget to create a collections policy. You need to have an idea of how to pursue nonpayment if someone falls behind. Once again, it’s important to make sure that how you approach collections is according to federal, state, and local regulations on personal lending businesses.

You should also have insurance and investors prepared to help you manage your business finances if you have people defaulting. To reduce the chances of default, you might need to consider how you will vet borrowers, including running credit checks and deciding what minimum credit score you’ll require.

Additionally, you’ll need to have policies for handling sensitive personal finance information. You’ll likely have to collect information regarding Social Security numbers (SSNs) , bank accounts, and other sensitive matters. You’ll need a way to protect your database and have protocols in place for keeping personal data secure.

How Do I Start a Private Lending Business?

In many cases, you need access to a large amount of capital to start a private lending business. This can come from your own finances, or you might need to get money from investors. You also need to meet specific regulations in your state and get the appropriate licenses, insurance, and permits to start a lending business.

How Does a Moneylender Business Work?

In a moneylender business, a lender provides cash to a borrower. The borrower pays interest, and they might even pay origination fees and other costs. As the borrower repays the loan, more capital is available for other loans, and the lender makes a profit from the interest they receive.

How Do Loan Providers Make Money?

Loan providers usually make money by charging interest on loans. The interest charge is normally part of the repayment process, and how the lender is compensated. Loan providers might also make money from fees they charge, including origination and administrative fees.

A personal loan business can be a profitable way to earn money. It’s relatively easy to manage, as long as you have a good system for keeping track of the progress of loan repayment. However, you need access to capital and need to be prepared to go through the regulatory process. Also, many loan businesses need good legal representation to help them navigate laws and regulations, in addition to drafting loan agreements and other documents.

Before you decide to lend money to others, carefully consider your situation and whether it makes sense for you to get involved with a personal loan business.

This article represents general guidance on setting up a personal lending business. Federal, state, and local regulations affect how a personal loan business works in each location, and you should check requirements before starting a new lending business. Consider working with an attorney or other professional to navigate the extensive regulation in the financial services industry.

IBISWorld. “ Installment Lenders Industry in the U.S.—Market Research Report .”

Internal Revenue Service. “ Apply for an Employer Identification Number (EIN) Online .”

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How to Start a Loan Business

Starting a loan business can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful loan business.

Importantly, a critical step in starting a loan business is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here .

Download our Ultimate Business Plan Template here

14 Steps To Start a Loan Business :

• Choose the Name for Your Loan Business
• Develop Your Loan Business Plan
• Choose the Legal Structure for Your Loan Business
• Secure Startup Funding for Your Loan Business (If Needed)
• Secure a Location for Your Business
• Register Your Loan Business with the IRS
• Open a Business Bank Account
• Get a Business Credit Card
• Get the Required Business Licenses and Permits
• Get Business Insurance for Your Loan Business
• Buy or Lease the Right Loan Business Equipment
• Develop Your Loan Business Marketing Materials
• Purchase and Setup the Software Needed to Run Your Loan Business
• Open for Business

1. Choose the Name for Your Loan Business

The first step to starting a loan business is to choose your business’ name.  

This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your loan business:

• Make sure the name is available . Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
• Keep it simple . The best names are usually ones that are easy to remember, pronounce and spell.
• Think about marketing . Come up with a name that reflects the desired brand and/or focus of your loan business.

2. Develop Your Loan Business Plan

One of the most important steps in starting a loan business is to develop your loan business plan . The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise money for your business.

Your business plan should include the following sections:

• Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your loan company.
• Company Overview – this section tells the reader about the history of your loan business and what type of loan business you operate. For example, are you a secured loan, unsecured loan, home equity loan, or personal loan business?
• Industry Analysis – here you will document key information about the loan industry. Conduct market research and document how big the industry is and what trends are affecting it.
• Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing services like the ones you will offer?
• Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
• Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
• Product : Determine and document what products/services you will offer 
• Prices : Document the prices of your products/services
• Place : Where will your business be located and how will that location help you increase sales?
• Promotions : What promotional methods will you use to attract customers to your loan business? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
• Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
• Management Team – this section details the background of your company’s management team.
• Financial Plan – finally, the financial plan answers questions including the following:
• What startup costs will you incur?
• How will your loan business make money?
• What are your projected sales and expenses for the next five years?
• Do you need to raise funding to launch your business?

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3. choose the legal structure for your loan business.

Next you need to choose a legal structure for your money lending business and register it and your business name with the Secretary of State in each state where you operate your business.

Below are the five most common legal structures:

1) Sole proprietorship

A sole proprietorship is a business entity in which the business owner and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.

2) Partnerships

A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a loan business together. The partners share in the profits and losses of the business. 

The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.

3) Limited Liability Company (LLC)

A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a loan business include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.

4) C Corporation

A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a loan business is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.

5) S Corporation

An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.

Once you register your loan business, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.

4. Secure Startup Funding for Your Loan Business (If Needed)

In developing your loan business plan , you might have determined that you need to raise funding to launch your business. 

If so, the main sources of funding for a loan business to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a loan business that they believe has high potential for growth.

5. Secure a Location for Your Business

There are a few key things you’ll want to consider when choosing a location for your private lending business. You’ll want to think about the demographics of the area, as well as the availability of potential customers. You’ll also want to make sure that the location is zoned for a business like yours.

Another important factor to consider is competition. You’ll want to find an area where there aren’t already too many loan companies competing for customers. 

In addition, you’ll want to make sure there is easy access to roads and highways in the area of the location. Finally, the property itself should have enough room for you to set up your office and meet with clients.

6. Register Your Loan Business with the IRS

Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).

Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.

Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.

7. Open a Business Bank Account

It is important to establish a bank account in your loan business’ name. This process is fairly simple and involves the following steps:

• Identify and contact the bank you want to use
• Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
• Complete the bank’s application form and provide all relevant information
• Meet with a banker to discuss your business needs and establish a relationship with them

8. Get a Business Credit Card

You should get a business credit card for your own loan business to help you separate personal and business expenses.

You can either apply for a business credit card through your bank or apply for one through a credit card company.

When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.

Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing business loans and getting credit lines for your business in the future.

9. Get the Required Business Licenses and Permits

The licensing requirements to start a loan business vary by state. You may need a business license, a loan broker license, and a credit services organization license. Make sure to check with the state where you plan to start your business for specific details and requirements. 

10. Get Business Insurance for Your Loan Business

There are a multiple types of insurance that you will need to have in order to operate a loan company.

Some business insurance policies you should consider for your loan business include:

• General liability insurance : This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
• Auto insurance : If a vehicle is used in your business, this type of insurance will cover if a vehicle is damaged or stolen.
• Workers’ compensation insurance : If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
• Commercial property insurance : This covers damage to your property caused by fire, theft, or vandalism.
• Business interruption insurance : This covers lost income and expenses if your business is forced to close due to a covered event.
• Professional liability insurance : This protects your business against claims of professional negligence.

Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs. 

11. Buy or Lease the Right Loan Business Equipment

To run a loan business, you need some basic equipment including a computer with internet access, a phone, and a fax machine. You will also need a printer to print out loan contracts.

12. Develop Your Loan Business Marketing Materials

Marketing materials will be required to attract and retain customers to your loan business.

The key marketing materials you will need are as follows:

• Logo : Spend some time developing a good logo for your loan business. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
• Website : Likewise, a professional loan business website provides potential customers with information about the services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
• Social Media Accounts : establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your loan business.

13. Purchase and Setup the Software Needed to Run Your Loan Business

The software you’ll need to run a loan business include a loan origination system (LOS), a loan processing system, and a loan servicing system. 

The loan origination system is the front end of your company, where borrowers fill out forms, provide documentation, and undergo review for credit. The loan processing system records the information associated with the loans you make—things like origination fees, interest rates, credit limits, and payments received. There’s also a back-end system that manages your borrowers—collecting payments and insurance premiums as well as servicing loans each month.

14. Open for Business

You are now ready to open your loan business. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.

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How to Start a Loan Company FAQs

Is it hard to start a loan business.

It is not hard to start a loan business if you familiarize yourself with the industry. In today’s competitive business environment, running a loan service company can be daunting and expensive. The key is building relationships with the right people so that your brand name increases in popularity. When this happens, you will find it easier to connect with potential customers and grow your business as well as prospects for investors who are looking for companies for investment capital.

How can I start a loan company with no experience?

There are a few ways to start a lending business with no experience. One way is to partner with an existing company that offers loans. Another way is to start your own company and provide loans to people who need them.

To start your own company, you'll need to do some research on the best way to offer loans. You'll also need to create a business plan and get funding for your business. Once your business is up and running, you'll need to find customers and make sure they're happy with your services.

If you're not sure how to start a loan business, there are a lot of resources available online and in libraries. You can also talk to someone who's already in the loan business to get advice.

What type of loan business is most profitable?

There is no definitive answer to this question, as the profitability of a loan business will vary depending on the type of loan products offered, the target market, and the level of customer service provided. However, short-term and payday loans are some of the most profitable loan products. They tend to have low default rates, and borrowers can complete their repayments within a short period. Therefore, money lenders get their money back faster.

How much does it cost to start a loan business?

The cost of starting a loan business varies depending on the services you offer as well as the physical location of your business. The startup costs for loan businesses typically include the cost of establishing your company, hiring employees, and developing a marketing strategy.

What are the ongoing expenses for a loan business?

The ongoing expenses related to businesses offering loans can vary based on the size of the business and whether it is a traditional brick-and-mortar organization or an online lender. Typically, ongoing expenses will be higher for brick-and-mortar establishments due to the need to pay for rent, utilities, and maintenance of the office space. Administrative fees are common, along with the cost of maintaining loan books and employee salaries.

How does a loan business make money?

A loan business makes money by lending money and charging interest on the loans it issues. It also may charge other fees, such as origination or late payment fees. Another way for a loan business to make money is by trading loans—buying and selling them with other business owner s or financial institutions.

Is owning a loan business profitable?

Yes, owning a loan business can be profitable. One reason is that there is a large potential market for loans. In addition, the interest rates vary widely and can be quite high, which can result in sizable profits. Furthermore, the business can be automated to a certain extent, which can further reduce costs and improve profits.

Why do loan businesses fail?

There are a number of reasons why other lenders may fail. One reason is that the company may be unable to generate enough revenue to cover its costs and repay its loans. Additionally, the company may have insufficient funds to cover potential loan defaults. Poor management and fraud are also common reasons for loan business failures.

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How to Get a Small Business Loan: A Guide in 10 Steps

S mall business loans are available from a large number of traditional and alternative lenders. Small business loans can help your business grow, fund new research and development, help you expand into new territories, enhance sales and marketing efforts, allow you to hire new people, and much more.

How to get a small business loan

This article explains the 10 key steps you should follow to get a small business loan, with some practical advice and insight on the lending process.

1. Understand the different types of small business loans available

There are multiple types of small business loans available. The options vary depending on your business needs, the length of the loan, and the specific terms of the loan. Here are a number of small business loan choices:

Small business line of credit. Under a small business line of credit, your business can access funds from a lender as needed. There will be a cap on the amount of funds accessible (e.g., $100,000), but a line of credit is useful for managing a company’s cash flow and unexpected expenses. There will typically be a fee for setting up a line of credit, but you don’t get charged interest until you actually draw down the funds. Interest is typically paid monthly, and the principal drawn down on the line is often amortized over years. However, most lines of credit require renewal annually, which may require an additional fee. If the line is not renewed, you will be required to pay it in full at that time.

Accounts receivable financing. An accounts receivable line of credit is a credit facility secured by the company’s accounts receivable (AR). The AR line allows you to get cash immediately, depending on the level of your accounts receivable; the interest rate is variable. The AR line is paid down as the accounts receivable are paid by your customers.

Working capital loans. A working capital loan is a debt-borrowing vehicle used by a company to finance its daily operations. Companies use such loans to manage fluctuations in revenues and expenses due to seasonality or other circumstances in their business. Some working capital loans are unsecured, but companies that have little or no credit history will have to pledge collateral for the loan or provide a personal guarantee. Working capital loans tend to be short-term loans of 30 days to one year. Such loans typically vary from $5,000 to $100,000 for small businesses.

Small business term loans. Term loans are typically for a set dollar amount (e.g., $250,000) and are used for business operations, capital expenditures, or expansion. Interest is paid monthly and the principal is usually repayable within six months to three years (which can be amortized over the term of the loan or have a balloon payment at the end). Term loans can be secured or unsecured, and the interest can be variable or fixed. They are good for small businesses that need capital for growth or for large, onetime expenditures.

SBA small business loans. Some banks offer attractive low-interest-rate loans for small businesses, backed and guaranteed by the SBA. Because of the SBA guarantee, the interest rate and repayment terms are more favorable than most loans. Loan amounts range from $30,000 to as high as $5 million. However, the loan process can be time consuming with strict requirements for eligible small businesses. Visit the SBA website to see a list of the 100 most active SBA lenders .

Equipment loans. Small businesses can buy equipment, vehicles, and software through an equipment loan. This typically requires a down payment of 20% of the purchase price of the equipment, and the loan is secured by the equipment. Interest on the loan is typically paid monthly and the principal is usually amortized over a two- to four-year period. Loan amounts normally range from $5,000 to $500,000, and can accrue interest at either a fixed or variable rate. Equipment loans can also sometimes be structured as equipment leases.

Small business credit cards. While some business owners may be wary of using them, small business credit cards can also act as short-term small business financing. Interest rates will vary depending on the credit card issuer, the amount available on the card, and the creditworthiness of the holder of the card. Many small business credit card issuers require the principal owner to be co-liable with the company. Issuers of small business credit cards include American Express, Brex, Capital One, Bank of America, and many others. Many credit cards offer promotional introductory rates of 0% for a short period of time (six to nine months). Cash-back and rewards programs allow you to earn rewards from purchases on the credit card.

2. Research available lenders

There are more lenders than ever willing to lend to small businesses, and many of the lenders can be found from a simple online search. Here are the main types of lenders:

• Direct online lenders. There are a number of online lenders that make small business loans through a relatively easy online process. Reputable companies such as PayPal can provide very fast small business cash advances, working capital loans , and short-term loans in amounts from $5,000 to $500,000. Sites such as Fundera offer access to multiple lenders, acting as a lead generation service for lenders.
• Large commercial banks. The traditional lenders to the small business market are banks such as Wells Fargo, JP Morgan, and Citibank. The loan approval process tends to be slower due to more rigorous loan underwriting criteria.
• Local community banks. Many community banks have a strong desire to make small business loans to local businesses.
• Peer-to-peer lending sites . There are a number of sites that act as middlemen between individual and institutional lenders and small borrowers, including SMBX , LendingClub , and Funding Circle . These lenders can make decisions relatively quickly.
• Bank lenders backed by SBA guarantees . A number of bank lenders issue loans backed by the SBA, and, as noted above, this backing allows lenders to offer more attractive terms.

3. Anticipate how lenders will view your credit and risk profile

Lenders ultimately make a judgment call on whether or not to make a small business loan based on the borrower’s credit and risk profile. Lenders will look at the following factors, so review them carefully and consider taking any appropriate remedial action:

• Credit score/credit report. Lenders will review your credit report, credit score, and history of making timely payments under credit cards, loans, and vendor contracts. So review your credit report and clean up any blemishes.
• Outstanding loans and cash flow. Lenders will review your outstanding loans and debts to determine that your cash flow will be sufficient to pay existing loans and obligations as well as the new loan contemplated.
• Assets in the business. Lenders will review the assets in the business (particularly current assets such as cash and accounts receivable) to see if there is a good base of assets to go after in the event of a loan default.
• Time in business. Lenders will tend to look more favorably on businesses that have been operating for several years or more.
• Investors in the company. Lenders will view the company more favorably if it has professional venture capital investors, strategic investors, or prominent angel investors.
• Financial statements. Lenders will scrutinize your financials, as set forth in the next section below.

4. Make sure your financial statements are in order

Depending on the size of your loan, your financial statements and accounting records will be reviewed carefully by the lender. So make sure they are complete, correct, and thorough—including balance sheet, income and loss statements, and cash flow statements. The lender will analyze your cash flow, gross margin, debt-to-equity ratio, accounts payable, accounts receivable, EBITDA, and more, so be prepared to answer questions on those topics. Consider having your accountant look over your financial statements to anticipate issues a lender may raise.

Lenders prefer financial statements that have been audited by a certified public accountant (CPA), but many small businesses don’t want to incur the costs of an audit. One alternative is to have the financial statements “reviewed” by a CPA (which is cheaper and faster). However, some lenders may not require either audited or reviewed statements.

5. Gather detailed information for your small business loan application

If you want to be successful getting a small business loan, you have to be prepared to provide detailed information and documents about your business; it is important to be prepared and organized. The following is the type of information that is often required from bank lenders, depending on the type of loan:

• Name of business (including any DBAs)
• Federal Tax ID
• List of executive officers and their background
• Legal structure (such as LLC, S corporation, C corporation)
• Financial statements for the past two to three years and year-to-date financials for the current year (balance sheet, income and loss statements, cash flow statements, shareholder equity)
• Projected financial statements (so that the lender can get a sense of your expected future operations and cash flow)
• State filings for the company, such as a certificate of incorporation, foreign corporation filings, and good standing certificates
• Copies of key man and general liability insurance policies
• Amount of loan requested
• Business credit report (such as from a credit reporting agency like Dun & Bradstreet)
• Potential collateral available for the loan
• Financial statements of the principal shareholder/owner of the business (especially in the case where a personal guarantee will be required)
• Business plan, executive summary, or investor pitch deck of the company (see A Guide to Investor Pitch Decks for Startup Fundraising )
• The tax returns of the company for the past two to three years (signed copies with all attachments and exhibits)
• Business bank statements

6. Be prepared to specify how much you want to borrow and the expected use of proceeds from the loan

The lender will want to know how much funding you are seeking and how the loan proceeds will be used. Will the loan be used for equipment or capital expenditures? Expansion or hiring? Increase in inventory? Enhanced sales and marketing efforts? New research and development of technology? New product development? Expansion into new facilities or territories?

You may want to borrow a little extra in case you run into a cash crunch that lasts a month or two. You have to avoid going into default under the loan.

7. Determine what security or guarantee can be provided

A lender is primarily concerned about the ability of the borrower to repay the loan. To the extent that a security interest can be given to the lender on company assets (company equipment, property, accounts receivable, etc.), the borrower should be able to increase its chances of getting a loan on favorable terms. Some lenders may insist upon the personal guarantee of the principal owner of the business. That is best avoided, if possible, as it puts your personal assets, and not just the business assets, at risk.

8. Analyze the key terms of the proposed business loan

To make sure the proposed business loan makes sense for your business, you will need to analyze the key terms proposed by a lender and compare them with terms available from alternative lenders. Here are the key terms to review:

• What is the interest rate on the loan and how can it vary over time? Many loans vary over time depending on the prevailing “prime rate” or some other benchmark.
• How often is the interest payable?
• When is the principal due or how is it amortized over the life of the loan? You need to be comfortable with the combined interest and principal payments from a cash flow perspective.
• What is the loan origination fee?
• What other costs or fees are imposed (such as underwriting fees, administration fees, loan processing fees, etc.)?
• What operating covenants are imposed on your business (such as a maximum debt-to-equity ratio or a minimum cash threshold held by the company)?
• What are the circumstances when the lender can call a default on the loan?
• Is there any security or collateral required?
• What periodic reports or financial statements are required to be provided to the lender?
• Are there limits on how the loan proceeds can be used?
• Can the loan be prepaid early without a penalty? And if there is a penalty, is the penalty reasonable?

9. Review your online profile and postings

A small business lender will perform due diligence, which can include reviewing the information available online about the business and its principal owner. So do the following review, anticipating such due diligence to see if you should make any changes or deletions to your online presence:

• Review your company’s website. Is it up-to-date and professional-looking?
• Review its presence on LinkedIn, Facebook, Twitter, and other social media sites.
• Review any Yelp reviews your business may have received.
• Review the principal owner’s postings on LinkedIn and other websites.

10. Get further educated on the small business lending process

The more educated you are about small business lending options and procedures, the more likely you will be successful in obtaining a loan. Here are some additional articles to review:

Small business loans are available from many different lenders, with a myriad of choices tailored to the financial situation of your business. By anticipating what lenders will review and require, you greatly increase your chances of obtaining a beneficial small business loan.

Copyright © by Richard D. Harroch. All Rights Reserved.

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How to Get a Startup Business Loan with No Money or Revenue in 2024

11 Minute Read

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Antonio Del Cueto, CPA

March 21, 2024

Starting a business is like planting a garden with no seeds in your pocket; you need help to get the seeds to start growing. A business loan with no revenue is like asking for a little water and soil to help your garden grow before you have any plants. Even if you have no money or bad credit, and lenders may ask for a credit check, there are ways to get a business loan to start your business.

They'll look at how long you've planned your garden (time in business) and decide on the loan amount to help you. But remember, just like watering your plants, you need to repay the loan payments on time. An SBA loan is one way to get this help, even for businesses with no money, giving them a chance to grow their garden from the ground up.

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What are the Challenges of Getting a Startup Business Loan with No Money?

Dive deep to know what are the challenges if you don't have money and planning to get startup business loan money for your business aspirations!

Business Loan with No Money

Getting a business loan with no revenue is like trying to buy fertilizer without money. Lenders may be hesitant because they want to know you can repay the loan. They look at your business's annual revenue, which, in this case, doesn't exist yet. This makes them cautious about offering loan amounts without seeing your garden's potential to grow.

Startup Business Loans

Startup business loans are special nutrients for your young garden. However, securing these nutrients requires convincing lenders that your soil (business plan) is fertile. These loans often come with specific repayment terms, and lenders require a minimum credit check to ensure you can manage loan payments, even without existing plants (revenue).

Small Business Loan

A small business loan can help water your garden, but it comes with its challenges, like higher interest rates or strict repayment terms for businesses without annual revenue . Lenders may be willing to offer financing, but they often ask for a personal guarantee or collateral, like business assets, to secure the loan.

How Can You Secure Financing for Your Startup Business?

Finding money to start your business is like planting a garden. You need seeds (capital) to get started, and then you have to care for it to make it grow.

Business Plan

Writing a business plan is like drawing a map for your journey. It shows lenders where you want to go and how you plan to get there. A good business plan can make it easier to get startup business loans because it proves you have a clear vision and strategy.

Credit Score

Your personal credit score can play a big role in securing financing for your new business. Lenders require a credit check to see how well you've managed money in the past. Think of it as your financial report card. A good score can open doors to different loan options.

Personal Credit

Using personal credit, like a business credit card, can be a quick way to get money for your business. But be careful—this option often requires you to promise to pay back the money if your business can't. It's like putting your own money on the line for your business dream.

Further Reading: Cost Of Goods Sold As An Asset

What Funding Options are Available for Startups with No Revenue?

Finding funding without revenue is like trying to grow a plant in rocky soil. It's challenging, but with the right resources, it's possible.

Alternative Business Financing

Alternative financing options, like equipment loans or funding from angel investors, might not require traditional bank requirements, highlighting the versatility in ways to secure a small business loan. These can be more flexible but might also come with higher costs or need collateral to secure the loan.

Business Credit Card

A business credit card can be a quick way to finance a business, especially for day-to-day expenses. It's important to look for cards that offer startup business loans with favorable terms, like low interest rates and rewards.

Types of Business Loans

There are various types of loans, such as term loans and the Small Business Administration (SBA) loans, with specific loan terms, which are designed to meet different needs. Some might offer capital with less strict requirements, but understanding each type's loan terms and requirements is key to choosing the best one for your startup.

Starting a business without money coming in yet is like planting a garden before the first rain, a testament to the challenge and necessity of securing a business loan without prior revenue. You might wonder if you can get a loan to help your garden grow even if it hasn't rained yet. It exemplifies the challenge of securing a business loan without established revenue or credit.

Lenders' Criteria

Lenders are like gardeners deciding which plants might grow well even without rain. This is how business lenders evaluate the potential for issuing business loans for startups. They often look at your credit score to guess how well you'll take care of your garden. Some lenders work with startups and might not require a minimum credit score but will look at your potential to grow, making it possible to get a small business loan even with less established credit history.

Business Grants

Business grants are like finding a rain cloud specifically for your garden. This is free money that you don't have to pay back, which can help with startup costs . However, getting this money may take time and effort, as every business wants this kind of rain, especially when looking to secure a small business loan.

Interest Rates

The interest rate on a loan is like the amount of water your garden needs; too much can flood it. Interest rates and repayment terms can vary based on how much the lender believes in your garden's potential to grow. A strong personal credit can help keep the water levels just right, impacting your credit score less.

How to Develop a Solid Business Plan for Loan Approval

A solid business plan is like a map for your garden, showing where each plant will go and how you'll take care of them.

Business Idea

Your business idea is the seed of your garden, setting the foundation for potentially securing business loans for startups. You'll need to explain why it's a good seed and how it will grow into a strong plant. The best business ideas show promise for generating revenue and filling a need in the market, making it possible to get a small business loan.

Cash Flow Projections

Cash flow projections are like predicting when the rain will come and how much you'll get. They show how money may come into your business and how you'll use it to cover startup costs and keep everything growing.

Loan Repayment Strategy

A loan repayment strategy is planning how you'll give back the water you borrowed for your garden. This includes a repayment schedule and how you'll meet your repayment obligations, even if your garden takes a while to start generating revenue. It's essential in securing a small business loan.

Key Takeaways:

• Credit Score: A number that shows how good you are at paying back money you borrow. Even without business revenue, a good personal credit score can help you get a loan.
• Collateral: Something valuable, like a house, that you promise to give the lender if you can't pay back the loan.
• Guarantor: A person who agrees to pay back the loan if you can't. This can help you get a loan when your business isn't making money yet.
• Business Plan: A detailed plan showing what your business will do and how it will make money. Lenders often want to see this before they give you a loan.
• Interest Rate: The extra money you need to pay back in addition to the loan. Loans without revenue might have higher interest rates.

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Tickmark, Inc. and its affiliates do not provide legal, tax or accounting advice. The information provided on this website does not, and is not intended to, constitute legal, tax or accounting advice or recommendations. All information prepared on this site is for informational purposes only, and should not be relied on for legal, tax or accounting advice. You should consult your own legal, tax or accounting advisors before engaging in any transaction. The content on this website is provided “as is;” no representations are made that the content is error-free.

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What to know about the SAVE plan, the income-driven plan to repay student loans

FILE - Wheaton College students stop to chat on the Norton, Mass. campus, Feb. 13, 2024 as snow falls. More than 75 million student loan borrowers have enrolled in the U.S. government’s newest repayment plan since it launched in August. (Mark Stockwell/The Sun Chronicle via AP, File)

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NEW YORK (AP) — More than 7.5 million student loan borrowers have enrolled in the U.S. government’s newest repayment plan since it launched in August.

President Joe Biden recently announced that he was canceling federal student loans for nearly 153,000 borrowers enrolled in the plan, known as the SAVE plan . Forgiveness was granted to borrowers who had made payments for at least 10 years and originally borrowed $12,000 or less.

The SAVE plan was created last year to replace other existing income-based repayment plans offered by the federal government. More borrowers are now eligible to have their monthly payments reduced to $0, and many will qualify for lower payments compared to other repayment plans.

For Lauran Michael and her husband, the SAVE plan has reduced student loan payments by half.

Since getting married, they’ve both been paying off her husband’s student loans, which would have amounted to about $1,000 a month when payments resumed after a pause during the pandemic. Under the SAVE plan, their payments are now $530 a month.

“We don’t want our loans dictating our life choices, and us not being able to do other things because we’re paying so much money. The SAVE plan is definitely a game changer for us,” said Michael, a 34-year-old interior designer in Raleigh, North Carolina.

Michael’s family is paying for daycare for their two children using the money they saved from not making payments during the pandemic and the reduced payments under the SAVE plan.

If you are interested in applying for the SAVE plan, here’s what you need to know:

WHAT IS AN INCOME-DRIVEN REPAYMENT PLAN?

The U.S. Education Department offers several plans for repaying federal student loans. Under the standard plan, borrowers are charged a fixed monthly amount that ensures all their debt will be repaid after 10 years. But if borrowers have difficulty paying that amount, they can enroll in one of several plans that offer lower monthly payments based on income and family size. Those are known as income-driven repayment plans.

Income-driven options have been offered for years and generally cap monthly payments at 10% of a borrower’s discretionary income. If a borrower’s earnings are low enough, their bill is reduced to $0. And after 20 or 25 years, any remaining debt gets erased.

HOW IS THE SAVE PLAN DIFFERENT?

More borrowers in the SAVE plan are eligible for $0 payments. This plan won’t require borrowers to make payments if they earn less than 225% of the federal poverty line — $32,800 a year for a single person. The cutoff for other plans, by contrast, is 150% of the poverty line, or $22,000 a year for a single person.

Also, the SAVE plan prevents interest from piling up. As long as borrowers make their monthly payments, their overall balance won’t increase. Once they cover their adjusted monthly payment — even if it’s $0 — any remaining interest is waived.

Other major changes will take effect in July 2024. Payments on undergraduate loans will be capped at 5% of discretionary income, down from 10% now. Those with graduate and undergraduate loans will pay between 5% and 10%, depending on their original loan balance.

The maximum repayment period is capped at 20 years for those with only undergraduate loans and 25 years for those with any graduate school loans.

WHO QUALIFIES FOR THE SAVE PLAN?

The SAVE plan is available to all student loan borrowers in the Direct Loan Program who are in good standing on their loans.

Read more about the SAVE plan here .

HOW DO I APPLY FOR THE SAVE PLAN?

Borrowers can apply to the SAVE plan using the Income-Driven Repayment Plan request through the Education Department’s website.

HOW WILL I KNOW THAT MY DEBT HAS BEEN CANCELED?

If you are one of the borrowers who is benefitting from forgiveness under the SAVE plan, you will receive an email from the Education Department.

WHAT ARE OTHER PROGRAMS THAT CAN HELP WITH STUDENT LOAN DEBT?

If you’ve worked for a government agency or a nonprofit , the Public Service Loan Forgiveness program offers cancellation after 10 years of regular payments, and some income-driven repayment plans cancel the remainder of a borrower’s debt after 20 to 25 years.

Borrowers should make sure they’re signed up for the best possible income-driven repayment plan to qualify for these programs.

Borrowers who have been defrauded by for-profit colleges may also apply for relief through a program known as Borrower Defense.

If you’d like to repay your federal student loans under an income-driven plan, the first step is to fill out an application through the Federal Student Aid website .

WILL THERE BE FUTURE FORGIVENESS?

Several categories of borrowers would be eligible for relief under Biden’s second try at widespread cancellation after the Supreme Court rejected his first plan last year.

The proposed plan includes relief for borrowers who have been paying their loans for at least 20 or 25 years, automatic forgiveness for borrowers who are eligible for income-driven repayment plans but are not enrolled, and loan cancellation for borrowers who attended a for-profit college that left them unable to pay their student loans, among others.

Whether any of the relief will materialize is a looming question as conservatives vow to challenge any attempt at mass student loan cancellation. The new proposal is narrower, focusing on several categories of borrowers who could get some or all of their loans canceled, but legal challenge is almost certain.

Currently, borrowers who are eligible for forgiveness under the SAVE program will get their loans discharged on a rolling basis, according to the Education Department.

This story was first published on March 10, 2024. It was updated on March 18, 2024, to correct the number of borrowers who have enrolled in the government’s newest repayment plan.

The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.

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Biden Approves $5.8 Billion in Additional Student Debt Cancellation

The incremental relief brings the canceled total to $143.6 billion for nearly four million Americans.

By Tara Siegel Bernard

The Biden administration continued its effort to extend student debt relief on Thursday, erasing an additional $5.8 billion in federal loans for nearly 78,000 borrowers, including teachers, firefighters and others who largely work in the public sector.

To date, the administration has canceled $143.6 billion in loans for nearly four million borrowers through various actions, fixes and federal relief programs. That’s the largest amount of student debt eliminated since the government began backing loans more than six decades ago, but it’s still far less than President Biden’s initial proposal, which would have canceled up to $400 billion in debt for 43 million borrowers but was blocked by the Supreme Court.

The latest debt erasures apply to government and nonprofit employees in the Public Service Loan Forgiveness program, which can eliminate their balance after 120 payments. The P.S.L.F. program, which was plagued with administrative and other problems, has improved in recent years after the administration made a series of fixes .

“For too long, our nation’s teachers, nurses, social workers, firefighters and other public servants faced logistical troubles and trap doors when they tried to access the debt relief they were entitled to under the law,” Education Secretary Miguel Cardona said.

Since those October 2021, more than 871,000 public service and nonprofit workers have received debt cancellation totaling $62.5 billion; before that, just 7,000 had reached forgiveness since the program was created more than 15 years ago.

Starting next week, borrowers who are set to receive the latest round of debt cancellation through the P.S.L.F. program will receive an email notification from Mr. Biden — a reminder of his administration’s work just eight months before the presidential election.

An additional 380,000 federal borrowers in the P.S.L.F program who are on track to have their loans forgiven in less than two years will receive emails from the president notifying them that they will be eligible for debt cancellation if they continue their public service work within that period.

Many of these borrowers have been helped by programs that tried to address past errors that may have failed to credit individuals for payments. As a result, many borrowers received account adjustments, or additional credits, pushing them closer to the repayment finish line.

Millions of borrowers with certain types of loans are still eligible for some of those adjustments, but they will need to apply to consolidate those loans by April 30 to qualify.

“There are a lot of people who need to consolidate by this deadline to benefit and potentially access life-changing student loan relief,” said Abby Shafroth, co-director of advocacy at the National Consumer Law Center. They include borrowers with privately held loans in the Federal Family and Education Loan , Perkins Loan and Health Education Assistance Loan programs, she added. (People with direct loans or loans held by the Education Department don’t need to do anything to have their payment counts adjusted; it happens automatically.)

Besides P.S.L.F., the administration has extended relief through a variety of other federal relief programs: About 935,500 borrowers were approved for $45.6 billion in debt cancellation through income-driven repayment plans, which base monthly payments on a borrower’s earnings and household size. After a set period of repayment, usually 20 years, any remaining debt is erased.

Another 1.3 million people had $22.5 billion wiped out through the federal borrower defense program, which provides relief to those defrauded by their schools.

The administration’s latest round of completed debt relief comes on the heels of its bungled rollout of the new Free Application for Federal Student Aid, or FAFSA, which was supposed to simplify the process. Instead, technical and other problems have created delays, leaving colleges without student financial information that they need to make aid offers. Students have been left in limbo, unable to make decisions on where they’ll attend college.

Tara Siegel Bernard writes about personal finance, from saving for college to paying for retirement and everything in between. More about Tara Siegel Bernard