How to write a business plan for a loan that lenders will read

A plan written to win investors and a plan written to support a loan answer different questions. An investor wants to know how big the business could become. A lender wants to know what happens to its money if things go only moderately well. This guide is for owners and finance directors preparing a plan for a term loan, acquisition facility, asset-based facility or start-up loan. Smart Funding Solutions is a broker, not a lender: we prepare funding requests for lenders on our panel of 300+, arranging facilities from around £10,000 to £500,000+, with larger facilities available in suitable cases, and we read a lot of plans. Our other business finance guides cover the rest of the application process.

01When a lender actually needs a plan

Many smaller, straightforward loans to established businesses are decided on bank statements and accounts alone. A written plan becomes important when the numbers on their own do not tell the lender enough:

• the business is less than two years old, or has not yet filed accounts;
• the loan will fund something new, such as a second site, a new product line or a large contract;
• you are buying a business, where the lender is being asked to rely on profits you have not yet earned;
• recent results show a loss or a dip that needs explaining;
• the amount is large relative to the business's current turnover.

Even where a full plan is not required, a one-page summary of the request, the purpose and the repayment source helps an underwriter and speeds up the questions. It sits alongside the standard documents lenders ask for, not instead of them.

02The structure lenders look for

Put the answer first. Underwriters read dozens of proposals a week; the ones that bury the request on page nine are the ones that get set aside.

1. The funding request

Half a page: the amount, the type of facility, the term you are hoping for, what it will be spent on, how it will be repaid, and what security or guarantees are available. If there is a deadline, say what it is and why.

2. Sources and uses

A simple table showing every pound coming in and every pound going out. It proves the amount is calculated rather than guessed, and shows the lender how much of the risk you are carrying yourself.

3. The business today

What you sell, to whom, how customers pay and how long they take, who your main suppliers are, and how many people you employ. Keep it factual. Include any licence, accreditation or regulatory approval your trade depends on, because its loss would be a risk to the lender.

4. Historic performance

Turnover, gross margin and profit for the last two or three years, and the current year to date. Explain anything unusual: a loss year, a big customer won or lost, a one-off cost. A lender will find it anyway; explaining it first builds trust.

5. What the money will change

The specific effect of the funding: extra capacity, lower costs, a contract that could not otherwise be accepted. Link each claim to a number in the forecasts.

6. Forecasts and assumptions

A monthly cash flow forecast for at least the first twelve months, ideally twenty-four, with an annual profit and loss account and balance sheet. Show the new loan repayments as a separate line. List the assumptions that drive the numbers: prices, volumes, customer payment days, staffing, and when the new investment starts to earn.

7. The downside case

The section most plans leave out and most lenders look for. Show the business still meets its repayments if sales are lower, or arrive later, than forecast. If it cannot, say what you would do: cut discretionary costs, delay hiring, draw on reserves.

8. The people

A short paragraph on each director or key manager: relevant experience, not a full CV. Lenders are backing people as much as spreadsheets, particularly for start-ups and acquisitions.

9. Risks and how you manage them

Name the three or four real risks, such as customer concentration, a key supplier, seasonality or a pending lease renewal, and what you are doing about each. A plan with no risks reads as a plan that has not been thought through.

03Illustration: a sources and uses table

Illustration (hypothetical business, simplified numbers). A bakery wholesaler is opening a second production unit.

The table immediately shows the lender that the equipment is funded against itself, the term loan covers the parts that have little resale value, and the owners are putting in their own cash. The forecasts then need to show when the new unit's sales begin, how long its customers take to pay and when the combined repayments are covered.

Half a page: the amount, the type of facility, the term you are hoping for, what it will be spent on, how it will be repaid, and what security or guarantees are available.

04Making the forecasts credible

• Start from actuals. Forecasts that jump from last year's performance without explanation are discounted.
• Use cash timing, not invoice timing. A sale invoiced in March and paid in May is May cash. Many profitable businesses run short because this is ignored. Our guide to calculating working capital explains the mechanics.
• Include VAT and tax. Quarterly VAT payments and corporation tax dates are fixed; show them.
• Reflect seasonality. If your trade peaks in some months and troughs in others, a flat monthly forecast will not convince a lender who can see your bank statements.
• Keep headroom visible. Show the gap between the cash available and the repayments due each month.
• Reconcile. Opening balances should match your latest bank statement and management accounts.

The lender will test these figures against the principles in our guide to how lenders assess applications, and against the five Cs of credit.

05How the plan changes with the type of funding

06Mistakes that weaken a loan plan

• Pages of market statistics and no clear request.
• A hockey-stick forecast with no explanation of what drives it.
• Forecasts that assume customers pay on the day of sale.
• Ignoring existing borrowing, directors' loan repayments or asset finance already in place.
• Figures that do not match the accounts or bank statements.
• No mention of what happens if things go wrong.

07Documents to send with the plan

A plan is read alongside the evidence behind it. Send these with it, so the underwriter can check the numbers without asking:

08Useful templates and help

GOV.UK has a free guide and templates to write a business plan. The British Business Bank's article on reviewing your business plan is useful for established businesses updating an old plan before a funding round. Your accountant can build or check the forecasts; a lender will value figures a qualified accountant has prepared or checked.

09Where a broker fits

We read your plan as an underwriter would before any lender sees it, point out the questions it leaves open, and turn it into a funding request for the lenders on our panel whose criteria it fits. Lenders make the decision. It is free to enquire; any broker fee is disclosed separately before you proceed. Our guide on how to apply for a business loan covers the steps after the plan is ready.