When you need a loan for your business, there is a considerable amount of information the lender will need to see before approving your loan. A business plan will be the make-or-break document you provide to them with all the necessary information. This plan will represent to the lender whether or not your proposed use for the funds is necessary and valid. Therefore, you want your business plan to be as close to perfect as possible. Listed below are some common business plan mistakes people make, and if you can avoid them, there is a much greater likelihood your business loan will be approved.
If you present your lender with a sloppy business plan, they will assume that sloppiness is a characteristic of how you will run your business using their money. When you hand over a business plan, you want to cross your “T”‘s and dot your “I”‘s. If you’re not familiar with that expression, it simply means to make everything as right as you possibly can. This includes spelling, grammar, structure, and all-around neatness of the document. Maybe you feel none of these are your strong points. If they’re not, find someone to help you. You can even jump on a freelancing website to find someone who is strong at editing. The small amount of money you may pay for a quick editing job will be well worth the expense when you get the loan. It will project pride and attention to detail when you hand over a quality business plan as opposed to one that is riddled with mistakes. So, take your time, fix what you can, and ask someone else who you trust to look it over. It never hurts to have a third person check your work, and the ultimate goal is to have your loan request accepted.
Being Too Vague or Incomplete
Do your research and be sure to include everything that should be in a typical business plan for a loan. Check out our blog “How to Write a Business Plan” to learn exactly what you’ll need to include in your business plan to increase your chances of getting the loan. For example, you can be sure the lender will want to see a detailed market analysis, a breakdown of organization management including their qualifications, salaries, and experience, and all about the product or service you will be providing. If you leave any of this out, they’re going to ask that you come back another day when you can provide that information.
Too Many Details
Stick to the pertinent information. Even though you might have the ability to write an entire book about your product or industry, don’t. If you hand over a stapled stack of useless information, your lender will have difficulty finding the information they do want to read. If you feel that you do need to go into great detail about a process or product, include it in the appendix. If the lender needs to see that, they’ll know where to go to find it. Also, keep the jargon in your business plan something a layperson can understand. Be clear and direct, and don’t forget to have someone else read over your plan and check for anything confusing or inconsistent.
Having Too Broad of a Target Market
When you go into business, you should strive to know everything there is to know about your target market. Attributes that define your target market might include an age range, sex, income level, religion, marital status, number of children, location (state, city, neighborhood), and several other possible criteria to determine the ideal customer for your product or service. Too many people go into business thinking they can sell to anyone. While there are products and services that do fit this description, they are rare. Plus, your lender will need to hear more detail about your target market if you want any consideration for having your loan accepted.
Insufficient or Incorrect Research Data
Data is an extremely important aspect of your business plan. Lenders want to see data to paint them a picture of how their funds will be helping your business. When you write a business plan, you have to have a sufficient amount of data to illustrate your plans and goals relating to the future of your business. Also, the data must be supported and accurate. And to have accurate data, the data must be current. If you use outdated figures to calculate your projections, your lenders will do the homework you failed to do and research the real numbers. When they do, they’ll lose confidence in you as a businessperson and deny you the loan.
Not Enough Documentation to Back Up Projections
A business plan is often used to help get a loan, and you, therefore, want to present a positive projection of how you think the business will succeed. However, you want to do this based on truth and fact. You can’t just inflate numbers or make unrealistic assumptions just because you think that is what lenders and investors want to hear. You should support your assumptions and projections with real numbers based on industry trends and benchmarks along with how your company has performed so far. You show the state of your business now and actually support how you think it will be in the future. You certainly don’t want to lie to your lenders, and you also don’t want to appear to be overly optimistic without proof to support your optimism. If you make unsupported and unrealistic claims about how you hope your business will perform, you will most likely be denied the loan.
Not Acknowledging Competition or Risks
No matter what business you are in, there will be either direct or direct competition or both. If someone is not providing the exact product or service your company will be providing, there is surely someone who comes close enough to get your attention. And if there really is no one providing that same service or product, there likely soon will be. Your lender already knows this. You need to acknowledge that you have or will have competition, and be able to explain how you will fend them off. Know what you can offer that they cannot. Quality, customer service, guarantees… Be aware of your competition and include solutions and strategies on how to deal with them in your business plan.
Every business involves some level of risk, so don’t deny its existence. You don’t have to dwell on it too much, and you can minimize it, but you should at least acknowledge it. Then you should discuss the steps you’ll take to mitigate those risks. If you try to convince your lender there are no risks, they will probably question your business acumen.
When preparing your business plan, don’t be in a hurry. Include all of the elements and read it over and over. Depending on your business, a business plan can be prepared and is little as 30 days or it can take as long as a year. So do your research, gather all necessary information, and even take a look at other business plan examples to give you an idea of what yours should look like. Avoid these business plan mistakes, and you will impress the lender with a clear, polished, and informative business plan that conveys professionalism and success.