Developing a strong business plan is one of the most effective ways to get your business credit-ready. It explains to lenders exactly what your product or service is and why people want to purchase it, as well as how you will tackle any environmental and market risks. It also helps you describe the amount of funding your business needs. Although a business plan isn't required for all types of credit, it often plays a significant role in SBA loan applications.

Business planning and credit

A business plan is a forward-thinking document that allows you to articulate your sources of revenue, how you will meet revenue projections, and your business's current financial status. It also tells lenders the story behind your business, where you want your business to go, and the assumptions behind your plan. Explaining to lenders how your business can generate a profit in the first few years and providing factual data to back this up can help them make an informed decision.

What elements go into a good business plan?

A good business plan should be clear, concise, and free of jargon. Consider asking an expert in the field, such as an accountant, to review your business plan and make suggestions for improvement. When creating your business plan, make sure you include the following information:

  • Company operations: Provide details about the administrative aspect of your business, including the physical location, equipment, labor, and overhead. Include your company's mission statement, why the company was established, business ownership structure, and future goals for the business.
  • Market analysis: Give detailed information about your business's industry, including the size of the market, target market, market need, competition, barriers to entry, and regulation.
  • Marketing plan: Explain how you plan to promote your business and generate revenue. Describe in detail what your product or service does and how it will help consumers. Explain how your product is unique from others on the market, and how you will promote your business and generate revenue. Also, provide details about the product life cycle and any intellectual property issues.
  • Financials: Include documents that communicate your business's financial status, such as income statements, balance sheets, and cash flow statements. List your expectations for revenues as well as the cost of your goods, rent, fuel costs, and other expenses.

Explain the amount of funding you need to start or expand your business along with a budget that details how you plan to use the capital you borrow. If you intend to expand your company, for example, you may use the borrowed money to rent additional office space, buy extra equipment, and hire more employees.

If you are planning to apply for business credit, understand that a solid business plan may not be required by the lender, but the actual process of developing the plan will enable you to answer many of the questions that lenders will have about your business.