Short answer: a business plan for a loan is not the same as a plan for investors. A lender reads it to answer three questions: what the money is for, how you will repay it, and what happens if things go worse than expected. Keep it short, put the numbers first, and show your assumptions. SBA lenders and banks lending to startups or business buyers almost always ask for one. Fast online lenders and cash advance providers rarely do.
Do you need a business plan for a loan?
| Type of financing | Business plan needed? |
|---|---|
| SBA 7(a) or 504 loan for a startup or business purchase | Yes, with financial projections |
| SBA loan for an established business | Often, especially for expansion |
| Bank term loan | Often, especially for newer businesses or larger amounts |
| SBA microloan or community lender (CDFI) | Usually, and many offer help writing it |
| Online term loan or line of credit | Rarely; bank statements matter more |
| Merchant cash advance or invoice factoring | Almost never |
Even when a lender does not ask, writing one helps you borrow the right amount. Read startup business loans if you are not yet open, and SBA loan requirements for the rest of what SBA lenders ask for.
The 7 sections lenders read
- Executive summary. One page. How much you are asking for, what it pays for, how it will be repaid, and why your business will succeed. Many lenders read this first and decide how closely to read the rest.
- Business description. What you sell, to whom, where, your legal structure and owners, and how long you have operated.
- Market and competition. Who your customers are, how many there are in your area or niche, who else serves them, and why customers will choose you. Use real sources, not guesses.
- Management and experience. Résumés for owners and key staff. For startups, industry experience is one of the strongest things a lender looks for.
- Use of funds. A table showing exactly where every dollar goes, plus any money you are putting in yourself.
- Financials. For an existing business, two to three years of financial statements. For everyone, projections of profit and loss, cash flow and a balance sheet, monthly for at least the first year and annually after, with the assumptions behind them.
- Repayment and risks. How cash flow covers the new payment, what collateral and guarantees you offer, and what you would do if sales came in lower than planned.
What lenders check in the numbers
Use of funds. Lenders want to see that the amount matches a specific need. A simple example:
| Use | Amount |
|---|---|
| Equipment | $60,000 |
| Inventory | $25,000 |
| Working capital reserve | $15,000 |
| Total loan request | $100,000 |
| Owner's cash injection | $15,000 |
Debt service coverage. Lenders compare the cash your business generates to all its debt payments, including the new loan. This is the debt service coverage ratio. If the business produces $150,000 a year in cash available for debt and its total annual loan payments would be $100,000, the ratio is 1.5. Lenders want a cushion comfortably above 1.0. Our business loan calculator shows what a new payment would be.
Projections that hold up. The most common reason projections fail is that the assumptions behind them are missing or optimistic. State them: price per unit, customers per month, growth rate, and costs as a share of sales. Show a conservative case alongside your expected case. Projections that jump far above your history or your industry need a clear reason.
What changes for an SBA loan
SBA loans are made by banks and other lenders, so the plan goes to the lender, not to the SBA. What changes is how much detail lenders need:
- Startups and business purchases: a full plan with projections is standard, along with an equity injection of at least 10% of total project costs.
- Business purchases: include the seller's financial statements, the purchase agreement, how you arrived at the price, and your plan for the transition.
- Repayment: SBA lenders must be satisfied the loan can be repaid from the business's cash flow, so the cash flow projections carry the most weight.
- Personal financial statements and guarantees from owners of 20% or more are separate SBA forms, so the plan only needs to mention them.
A one-page loan business plan template
Use this outline for the summary that sits on top of your full plan, or as the whole plan for a small loan:
| Section | What to write |
|---|---|
| The request | "We are requesting $___ over ___ years to ___." |
| The business | What you sell, to whom, where, since when, and who owns it |
| Why it will work | Your customers, your advantage over competitors, and evidence such as contracts, sales or a waitlist |
| Your team | Owners' and managers' experience in this industry |
| Use of funds | The table: each use, its cost, and your own contribution |
| Financial snapshot | Last year's revenue and profit (if any) and next year's projection |
| Repayment | The new payment, the cash flow that covers it, and your debt service coverage ratio |
| Collateral and guarantees | What you are pledging and who is guaranteeing |
| Risks | The biggest two or three risks and what you will do about each |
The SBA has a free guide to writing a business plan, and free mentors at SCORE and Small Business Development Centers (find local help) will review your plan before you apply.
Mistakes that get plans rejected
- No clear ask. The amount, purpose and term should be on the first page.
- Numbers that don't match. The loan request, the use of funds and the projections should all agree with your bank statements and tax returns.
- Missing assumptions. Projections without explanations look like guesses.
- Ignoring the payment. If the projections do not show the new loan payment, the lender has to guess whether you can afford it.
- Too long, too vague. Lenders read many plans. Pages of mission statements and market trivia hide the numbers they need.
- No owner investment. Lenders, and the SBA for startups, expect you to have your own money in the business.
Frequently Asked Questions
Do I need a business plan to get a business loan?
Not always. SBA lenders and banks lending to startups or business buyers almost always want one, and community lenders usually do. Online lenders and cash advance providers rarely ask, because they decide mainly from your bank statements and revenue.
Do I need a business plan for an SBA loan?
For startups and business purchases, yes: SBA lenders expect a business plan with financial projections. Established businesses borrowing for working capital or equipment may need less, but many lenders still ask for a short plan, especially for expansion.
How do I write a business plan for a small business loan?
Focus on what the lender needs: the amount and purpose, a use-of-funds table, your experience, your financial history, projections with clear assumptions, and how cash flow will cover the payment. Start with a one-page summary and keep the full plan concise.
Why do lenders want a business plan?
It shows them how the loan will be used and repaid, and whether you understand your market and your numbers. For a new business with little history, the plan and your experience are much of what the lender has to go on.
What financial projections do lenders want?
Usually a projected profit and loss statement, cash flow statement and balance sheet, monthly for at least the first year and annually after, with the assumptions behind them. The projections should include the new loan payment and show cash flow covering it with room to spare.
Can I write my own business plan?
Yes, and it is usually better if you do, because lenders will ask you about it. Free help is available from SCORE mentors, Small Business Development Centers and the SBA's online guide, and they can review your draft before you apply.
Sources
- U.S. Small Business Administration: Write your business plan
- U.S. Small Business Administration: Local assistance (Small Business Development Centers and other free advisors)
- SCORE (free business mentoring)
- U.S. Small Business Administration, SOP 50 10 8 (equity injection and repayment rules)