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Ask an Underwriter: Do I Need a Business Plan to Get a Loan?

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Ask an Underwriter: Do I Need a Business Plan to Get a Loan?

Updated: January 7th, 2020

Ask an Underwriter: Do I Need a Business Plan to Get a Loan?

Before you apply for business funding, there are a few things to get in order. Every lender has different requirements for business loan applicants, but many lenders will ask you to submit a business plan as part of your application. 

A business plan is a document that contains information about a business’s mission, objectives, and financials. Business plans can take many different forms, but their primary purpose is to illuminate a business owner’s goals and outline a plan for achieving them. 

Most business plans for a loan include the following information:

  • Your business’s mission
  • A description of your products or services
  • A market landscape analysis
  • A history of your financials or a few financial forecasts
  • Your broad goals for the business
  • An explanation of the type of funding you need to meet your goals
  • The measurables and timeline for attaining your goals

Knowing how to write a comprehensive business plan is a good idea of whether or not you decide to apply for funding. If you’re just starting your business, it’s particularly useful. Having a detailed write-up can help you assess your competition, better understand your business’s place in the market, clarify your goals, address financial concerns, pinpoint any weaknesses in your business structure or pricing, figure out how to improve upon your current strategies, and create measurable objectives and realistic timelines for meeting them. 

That said, you don’t necessarily need to draft a multi-page business plan for your business loan application. Depending on the loan type and lender you go with, you may be able to submit an abbreviated version that includes just the essentials. So, what do you need in your business plan to get a loan? Read on to learn more. 

Why do you need a business plan to get a loan?

Lenders want to know you’ve thought about your business in detail, including considering how you’re going to beat out the competition, how you plan to grow, and how funding might play a role in your success. A business plan helps shed light on those areas in question. 

Plus, lenders want to assess your business’s overall financial health. They need to understand your pricing strategy and see how you’ve improved your cash flow (or determine why you haven’t). Still, they also want to know whether or not you’ve increased sales or revenue, how you allocate money for expenses, and how much debt you’ve taken on and repaid. Above all, though, in a business plan for a loan, lenders need to know why you’re looking for business funding and how you intend to use the money. 

Providing a handful of financial documents only takes you so far — and that’s where knowing how to write a business plan for a loan comes in handy. A business plan offers more in-depth insight into the business owner’s goals. While you may not need a business plan to get a loan, it helps contextualize the numbers and patterns underwriters see in documents like your balance sheet and cash flow statement. 

In short, a business plan — even a condensed one — is an opportunity to humanize your business and explain how you plan to grow it. 

How to write a business plan for a  Funding Circle loan

Traditional lending institutions like big banks and the Small Business Administration usually ask you to submit a detailed, multi-page business plan that incorporates market analyses, measurables, and financial information. 

Other alternative lenders may ask for a one-page business plan for a loan that uses bullet points to condense each section, so the information is easier to digest. 

But what about at Funding Circle? With us, the answer to “Do I need a business plan to get a loan?” has a reasonable answer. We don’t need you to submit a multi-page tome you’ve slaved over for weeks. In fact, we don’t even need to see a five-year plan — we just want to know you’ve thought about your business goals and financing needs. 

Our underwriters look for two things in a business plan for one of our loans:

1. An explanation of your funding needs

You can position yourself for success when writing a business plan for a loan by clearly identifying how much funding you need and what you need it for, whether it’s to buy more inventory, hire a project manager, or open a second business location. This is an excellent opportunity to consider what your operation needs to be successful and how you can better prioritize and fund your business’s various development projects. 

At Funding Circle, we’re passionate about helping small businesses get ahead. Explaining how you plan to use your financing helps our underwriting team better understand your business’s growth trajectory. It also assists us in determining what we can do to help put you on the right path.

When describing your funding needs, it’s essential to be hyper-specific. For example, though increasing your working capital is a valid reason to seek financing, it’s rarely a sufficient explanation for an underwriter. As you write a business plan for a loan, we want to hear concrete details about how you plan to use the money. Instead of saying you want $100,000 in working capital, which is too broad of an explanation, you could say you want $33,000 for inventory in advance of the busy season, $37,000 for new hires, $20,000 for remodeling, and $10,000 for radio advertising.

Breaking down how you intend to spend the money gives us a clearer picture of your plans. It also demonstrates your confidence and execution as a business owner. 

2. An explanation of how the funds will result in better business

It’s not enough to describe what you plan to put your funding toward — you also need to explain how additional funding will contribute to the overall growth and development of your business. Our underwriters want you to tell us how the money you borrow will directly affect your business’s success. 

Be as specific as possible when describing the potential impact of your funding. For example, instead of saying you need $40,000 for inventory, try this: “I need $40,000 to buy a full unit of inventory direct from the manufacturer. This will help us prepare for the holiday season while lowering per-unit costs.” 

Going into detail as you write a business plan for a loan demonstrates your ability to reflect on your business’s needs and plan accordingly accurately. This, in turn, can help lenders make more deliberate decisions about your business.

Here’s another example. Say you need $75,000 to hire an administrative assistant and cover the cost of job ads and training. While that level of detail is good, it’s vital to dig into the “why” and explain how an administrative assistant translates to better business success. You could say: “Hiring an administrative assistant who can manage client information, schedule meetings, and handle paperwork will cut my workload in half as the business owner, freeing me up to focus more on direct sales and increasing our revenue.”

Don’t underestimate the power of a business plan even if you don’t need one for a loan

Do you need a business plan to get a loan? This question may have different answers depending on the lender, but the answer should be “yes” regardless. That’s because a business plan for a loan can be as simple as explaining how much funding you need, what you need it for, and why. Having this information up front saves us time and helps prevent back-and-forth questions during the underwriting process, which means you get your funds faster. So, consider creating one even if the lender doesn’t explicitly request a business plan.

What else underwriters look at

Beyond a brief business plan, our underwriters also review other critical areas of your business. This includes your personal credit history, business debts, and business bank statements. These three areas help tell us more about your business’s financial health, your reliability as a business owner, and whether or not your industry is stable. 

To learn more about what we ask for in a business loan application and why, read about our process here

At Funding Circle, we’re committed to helping business owners get the funds they need to thrive. That’s why we pride ourselves on an easy online application system and a smooth, fast underwriting process. Learn more about our small business loans or apply today with no obligation. 

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