How to Write a Business Plan for a Loan

A business plan can help you obtain financing by highlighting the characteristics lenders use to assess borrowers.

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A business plan can improve your chances of being approved for a loan by helping to persuade lenders that your business is worth investing in and that you have the ability to repay the loan. Many lenders will ask that you include a business plan along with other documents when submitting your loan application.

When applying for a business loan, you want to highlight your abilities, justify the need for your business and define your financial needs. A well-thought-out business plan gives you the opportunity to do that.

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Business plan sections and characteristics

A traditional business plan format is typically what lenders are looking for as part of your loan application. This comprehensive layout gives you space to provide detailed information about your business.

Executive summary

The executive summary is used to spark interest in your business. It may include high-level information about you, your products and services, your management team, employees, business location and financial details. Your mission statement can also be added here.

Company overview

The company overview is an area to describe the strengths of your business. If you didn’t explain what problems your business will solve in the executive summary, do it here. Highlight any experts on your team and what gives you a competitive advantage. You can also include specific details about your business such as when it was founded, business entity type and history.

Products and services

Use this section to demonstrate the need for what you’re offering. Describe your products and services and explain how customers will benefit from having them. Explain any patents or copyrights here.

Market analysis

Here you can demonstrate that you’ve done your homework and showcase your understanding of your industry, current outlook, trends, target market and competitors. You can add details about your target market that include where you’ll find customers, ways you plan to market to them and how your products and services will be delivered to them.

Marketing and sales plan

If you didn’t cover marketing strategies in your market analysis section, you can devote an entire section to the topic. The main goal is to provide details on how you plan to attract your customers and build a client base. You can also explain the steps involved in the sale and delivery of your product or service.

Operational plan

The operational plan section covers the physical requirements of operating your business. Depending on your type of business, this may include location, facility requirements, equipment, vehicles, inventory needs and supplies. Production goals, timelines, quality control and customer service details may also be included.

Management team

This section illustrates how your business will be organized. You can list the management team, owners, board of directors and consultants with details about their experience and the role they will play at your company. This is also a good place to include an organizational chart.

Funding request

This is where you explain the loan amount you want and how the funds will be used. You can add details about how the money will be spent. Also include your strategy for paying off the loan.

Financial statements

Financial statements can indicate the financial health of a business and also demonstrate to the lender that you have the ability to repay the loan. Include three to five years of actual or projected income statements, cash flow statements and balance sheets. For an existing business, consider also including an expense analysis and a break-even analysis. When using forecasted statements for a new business, explain your projections. Graphs and charts can be useful visual aids here.

Appendix

Finally, if necessary, supporting information and documents can be added in an appendix section. This may include letters of reference, product pictures, licenses, permits, contracts and other legal documents.

What lenders look for in your business plan

A lender will typically evaluate your loan application based on five C’s — or characteristics — of credit: character, capacity, capital, conditions and collateral. While it won’t contain everything the lender needs to complete its assessment, your business plan can highlight your strengths in each of these areas.

Character

A lender will assess your character by reviewing your education, business experience and credit history. This assessment may also be extended to board members and your management team. Highlights of your strengths can be worked into the following sections of your business plan:

  • Executive summary.

  • Company overview.

  • Management team.

Capacity

Capacity centers on your ability to repay the loan. Lenders will be looking at the revenue you plan to generate, your expenses, cash flow and your loan payment plan. This information can be included in the following sections:

  • Funding request.

  • Financial statements.

Capital

Capital is the amount of money you have invested in your business. Lenders can use it to judge your financial commitment to the business. You can use any of the following sections to highlight your financial commitment:

  • Operational plan.

  • Funding request.

  • Financial statements.

Conditions

Conditions refers to the purpose and market for your products and services. Lenders will be looking for information such as product demand, competition and industry trends. Information for this can be included in the following sections:

  • Market analysis.

  • Products and services.

  • Marketing and sales plan.

Collateral

Collateral is an asset pledged to a lender to guarantee the repayment of a loan. This can be equipment, inventory, vehicles or something else of value. Use the following sections to include information on assets:

  • Operational plan.

  • Appendix.

Free resources for writing a business plan

The Small Business Administration, or SBA, offers a free self-paced course on writing a business plan. In addition, SCORE, a nonprofit organization and resource partner of the SBA, offers free assistance that includes a step-by-step downloadable template to help startups create a business plan, and mentors who can review and refine your plan virtually or in person.