What Lenders Look For In Business Plans

As bloggers we never think that we may need outside sources of funds for our online business.Most online business owners have the idea that we do not need any funding for our businesses. However, any business without funding is a few weeks away from cash flow problems.Paying for hosting, article writers, web traffic generation, link building can be done best with funds.

We have seen the need to create business plans for our online business. However, a business plan other than being a great guide for your business ideas, should also serve as a tool to attract lenders or shareholders. Believe it or not, even a one person blog needs an investor. In this case it is your spouse who wonders why you are using gas money to pay for hosting.Having your business plan reflecting the needs of any person involved in your funding is an essential ingredient in your business plan.

If you are looking for a lender or investor to provide you with the capital needed for your online business, it is essential to understand what one would be looking for in your business plan.If you are seeking for debt capital ,the main issue with a lender would be to ensure that you can repay the loan together with the interest.If you are looking for people to invest in your business as equity capital, they will most likely be more interested in the returns the business will likely provide for their investment. When writing an effective business plan these are the things to consider with your capital providers:

1. Your Credit Rating

This seems unfair to most people who are seeking to do their own business, however, it is a rare lender or investor who will not be interested in the credit rating or history of the business owner.Your business plan should include your past credit history. Past delinquencies and bankruptcy serves as a red flag to potential lenders. I have seen business plans that an owner with a bad credit history has won over the lender by explaining the reasons for their bad credit rating.

Existing business will need to include their past financial records including profit and loss statements,balance sheets and tax returns for the past years.If you are a new business, the personal financial history of the business owner(s) will be examined and must be included in an effective business plan.The character of your business will greatly depend on your past credit history (personal or business) so it is a good idea to take care of your credit rating.

2. Your Collateral

So you wish to get someone else to fund your business, what collateral will you bring to the table? How much are you willing to risk for your business ? Most new business owners believe that a bank asking for collateral is unfair but the question the lender or investor is trying to answer is ,how confident are you with your business idea? Why would I give anyone money who does not believe in their business?

The investor or lender wishes to know that their investment is protected.A business plan that does not show this is not an effective business plan.

3. Demand For Your Product

It’s all fine and lovely to come up with a great business plan but is there any demand for your product. Selling sand to someone in the desert is not fulfilling any demand. Be prepared to show evidence that your product will fill a need and it will be well received by your target market.You will be expected to show this using hard facts like sales history, purchase orders, accounts receivables etc.

For new business, it is essential to have test data like surveys, questionnaires, and even testimonials. If you are running an online business, the testimonials section is very important.It is a good idea to try as much as possible to ask for a testimonial from anyone who is using your product in your business plan.Results from your polling and questionnaires should be in your business plan.

We shall continue with more essentials for your effective online business plan later.

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