5 Red Flags Lenders Look for in a Business Plan 5 Red Flags Lenders Look for in a Business Plan
One of the best ways to land the loan you need is to be prepared with a thorough and organized business plan. 5 Red Flags Lenders Look for in a Business Plan

Meeting with lenders to secure financing for your business can be a stressful and intimidating process. One of the best ways to land the loan you need is to be prepared with a thorough and organized business plan.

There are volumes of information you can read about how to create good business plans. But, since we know you are a busy entrepreneur, we’ve outlined five quick and easy tips detailing things you should avoid in your plan to impress potential lenders.

Sloppy Presentation

Take the time to have a third party review your business plan for mistakes like typos, grammar errors, and inconsistent formatting. Slip-ups like these can overshadow a solid plan. Plus, they demonstrate a lack of attention to detail, which is an important quality in the business world. It may be worth the investment to hire an editor to ensure your deliverables look professional and polished. Don’t skimp on materials by using cheap paper, free clip art, or complementary business cards. Investors might get the impression that you are not fully invested in your business.

Lack of Financial Projections

All successful business plans will include financial projections, which encompass your balance sheet, income statement, cash flow statement, and capital expenditure budget. This section of your business plan will be the most scrutinized by potential lenders. Make sure your global cash flow is in order (business/personal cash flow vs. business/personal debt) as well as your debt service coverage ratio (net operating income divided by total debt service). Lenders will be making sure you actually know how much money you need, that the plan is financially viable, and that your company will be able to cover whatever debt it takes on. Even if you are not an accountant, be sure you are able to talk about your financials in an educated manner. Take the time to truly understand all elements of your financial projections so you will be able to address any questions.

Inexperienced Leadership

When meeting with lenders, they will want to see that your management team has the experience necessary to successfully operate your business. If you are lacking in some areas, seek help to fill that gap before you meet with lenders. Or, put a plan in place to show how you are going to fill those gaps. Whatever you do, don’t simply gloss over areas of weakness – Address them head-on and explain how you will overcome them.

Omitting Marketing

Marketing is often the key to success for many businesses. Yet, many companies leave it out or don’t talk about marketing in depth in their business plan. Lenders want to know how you plan to attract new customers and differentiate your product, and they will want to see funds allocated to marketing to prove that you are invested in that plan.

Concealing Challenges

No business is without challenges or competition. So, it’s silly to withhold information about challenges in your business plan. Lenders are looking for businesses that are honest about their challenges and have a specific plan of how they will tackle these challenges. This shows that you have a handle on the competitive landscape in your industry and you are prepared to dive right in and conquer it!

The bottom line is, when it comes to successful business planning, be over-prepared. Make sure you are aware of any potential hurdles and know how you plan to overcome them. Be smart about your financials and present yourself professionally. The planning and preparation will pay off when you connect with a lender who will help your business grow to the next level.

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