Not necessarily uncommon for small businesses with limited resources to be challenged at the thought of facing their bank manager to obtain business funding. The reason is simple; regardless of how long you have been with your lender, you will still have to comply with thank you’s when it comes to funding your business start up or business growth. Essentially, you will be asked to write a business plan for funding which must be offered your application form. You may wonder why you need to present a business want to lenders or buyers. Let’s think about why banks want you to prepare a strategy and then you will totally understand why investors look for this important document that will cost you some time and money to put together, but in the end, if done well, will help you enhance the much needed finance. Win at LinkedIn
Some Causes Why Banks Need A Business Plan
1. Banking companies are taking a risk upon you and your business and they need to understand that risk and compare it against the expected reward from your business. Have you ever before thought about how precisely banks make their money for his or her investors? Well, they do so investing their capital (money – usually investors’ cash and borrowed funds) in your business with full expectations of earning higher returns than the costs they must pay money for credit or raising their own capital. If you do not deliver the returns on their investment from your business, they are going to conclude being a victim of your problems which will cost them their business. In a nutshell, your risk of business failure becomes their risk too.
2. They want to gain an improved understanding of your management team who will be in charge of managing the funds used in your business. This kind of is a concept many small businesses and start-ups, don’t grasp fully. That they may think their business ideas or wonderful products are sufficient ingredients for business success. Nothing can be further from the truth. A small business is an business of integrated functional activities built to accomplish a desired objective. These integrated activities must be managed skillfully by different people inside or beyond the organisation for successful leads to be accomplished. The bank administrator reviewing your application must be satisfied that your team possesses competencies both at the level of technical knowledge and deal with frame of mind – the critical elements for success when present and vice versa. A business that is inadequately managed will fail regardless of the quality of its products and benefits agreed to its target market. With this in brain, you must be aware that when you make an application for funding from a lender (or any other types of funders), your management team’s quality will have to be judged depending on past performance. They also would like to know if your management team possesses industry, business and market knowledge. Of course, if you are an one man business, you will need to ensure you put in place a team, virtual or physical that brings the balance of expertise critical to provide assurance to the lender that your business will not expose them to unmeasured risks.
4. That they want absolute assurance that your business model is robust. That you have thought about the advantages and cons of each option and also have a feasible business proposition which is not devoid of fact. This will be examined with questions in areas where gaps are discovered and you will be expected to give answers that are credible to ensure their funds are certainly not exposed. Banks want to see positive returns on their investment in your business, they won’t make any compromise for your own short-comings and the sooner you address the weaknesses in your business plan the faster it will be easy to raise funding for your business.