A detailed business plan is essential for any traditional small business loan applicant. Lending institutions want to see that you intend to spend the money they are trusting you with on investments that will almost certainly increase revenue. Your business plan should therefore be similar to those of previous borrowers whose investments lead to significant success.
The business plans that are most likely to help you earn approval involve the most fundamental purposes for a business loan, or rather the primary reasons small business loans were invented in the first place. So in addition to an appealing business plan, the following investments might as well represent the most sensible and effective strategies for growing a business.
According to the Huffington Post, these are the investments that are perceived by the majority of lending institutions as solid business plans:
1. PRODUCT DEVELOPMENT
You have an idea for a new product that seems destined to be a sensation but you lack the funds necessary for developing it or distributing it on a mass scale. If you are so confident in this product, you should have no problem pitching it to prospective lenders. Business plans pertaining to product development have a high chance of approval because for many successful businesses, investing product development was their first step towards the big leagues. Ziver Birg, founder of Zivelo, which sells customized electronic kiosks to banks, airports and retailers, told Entrepreneur in 2015 that quality design is in fact the best investment you will ever make.
It’s important to note that business lenders will not be enticed by products that will only bring short-term success. Your idea must be a real groundbreaker that has the power to vastly enhance your business’s reputation and finance more investments down the line. Previous data must also suggest that this is exactly what current and potential customers are looking for and specifically outline how much revenue will increase over a substantial period of time.
2. REAL ESTATE
Your employees might be cramped together, demand might be skyrocketing, or you might need more space for some new equipment. Maybe you’ve found a cheap deal on a space that is closer to the homes of your employees or your target demographic. Securing additional property is particularly useful for certain industries, such as food service and retail, since countless businesses from these industries owe a great deal of their success to finding the right location at the right time. Small business loan providers have observed first-hand just how quickly a second location can completely revolutionize a small business that has earned the popularity to serve a larger audience.
Keep in mind, however, that the appeal of this new location must be entirely strategic. Far too often do business owners ask lenders to finance properties that offer little benefits outside of an upscale neighborhood, a stylish, modern design, or an excessive amount of space. If location plays a major role in your business’ competitive edge, consider whether your investment is situated near high-traffic businesses as well as a community rife with your ideal customer.
3. NEW EQUIPMENT
New equipment is vital for both running and growing a business. Crucial pieces of equipment typically break after being worn down for a considerable amount of time, which impedes productivity along with the focus of the business owner, since it’s difficult to devote 100% of your concentration to anything when you know day-to-day operations are at risk. The addition of new equipment is supposed to make the daily grind less chaotic and more organized.
But like the previous two investments, you must make sure that whatever tool you have in mind is unquestionably necessary for staying competitive and satisfying demand. The rapid advancement of technology, for example, has countless businesses wasting money on sophisticated gear they really don’t need, from exercise bikes to refrigerators. It might also be wise to inform your prospective lender that because your business requires a few expensive pieces of equipment, you are making a conscious effort to buy other equipment at discounted prices via secondhand stores or related websites.
Many industries conduct the brunt of their sales during certain times of the year, such as the summer or holiday season. The busy season follows the slow season, when sales are down and monthly budgets are extremely tight. But in order to maximize performance for the busy season, businesses must invest in excessive amounts of inventory, wide-reaching marketing campaigns, and a new batch of staff members. Any credible lending institution is well-aware that the effects of seasonality are simply unavoidable and will likely approve loans for businesses that have proven to achieve immense success when the opportunity presents itself.
Arguably the most appropriate funding program for a seasonal business could be a Merchant Cash Advance, which supplies a lump sum of funds today in exchange for a percentage of future credit card sales. There are no fixed payments and repayment is directly tied to sales volume so it’ll be repaid quicker when sales are booming and repaid longer when things are slow. This allows you to cover operational expenses as well as your investment without having to start making large payments immediately after. In theory the merchant advance is repaid quicker when your investment triggers an increase in business.
THE FINISHING TOUCHES
No matter the subject, all business plans must be supported with hard data explaining how and when the investment will help your company in the long-term. If you plan on using your funding for any of the aforementioned purposes, you will have an easier time accumulating favorable data because logic and history are on your side. The next step is figuring out exactly how much to borrow, and the answer will likely come to you as you review your collection of statistics.