An inside look at a lender’s perspective

Betty Uribe, Executive Vice President, California Bank & Trust

The decision to expand your business, purchase a new building or a piece of machinery is no doubt a big  decision for a business owner, especially when deciding to use your own resources or borrow from a bank. In today’s regulatory environment, banks are no longer lending based on the collateral; they are focusing more on the business history, the owners, their future plans and how they plan to repay the loan.
“A business plan is an excellent way to tell bankers about the story behind the numbers and let them know you have a good handle on the future of your business,” says Betty Uribe, executive vice president for California Bank & Trust.
Smart Business spoke with Uribe about how to develop a business plan to increase your chances of obtaining a business loan.

Why are business plans important to lenders?

Just as a builder utilizes a blueprint to build a structure, and travelers use a roadmap to get to their destination, business owners must use a well-thought-out business plan to dramatically increase their odds of succeeding. When presenting a loan package to a lender, an organized, well-thought-out business plan can make the difference between getting the loan and getting a decline letter in the mail.
A business plan will:

  • Show the lender if the business has a chance of making a profit and in what amount of time.
  • Provide a well-thought-out estimate of how much the business needs to grow.
  • Convince the lender to fund your business.
  • Define the business market, the customers and the percentage of the market the business plans to reach, hereby providing a clear revenue estimate.
  • Show the lender potential issues, and how the borrower plans to address them.

What are the steps involved in creating a good business plan?

First, start with an outline and fill in the blanks as you learn more about the process. Keep in mind that your plan should be only as big as necessary for your firm to run smoothly. In fact, the outline alone may suffice, particularly if you are not submitting the plan in a package to obtain financing.
There are many tools to consider when embarking on your business plan.  Many seasoned entrepreneurs like to calculate a break-even analysis to predict future viability in their respective fields. In a nutshell, this is a formula based on the relationship between revenue, fixed costs, variable costs and profit. The analysis can show you how much money you must bring in to stay solvent.
Another preliminary tool is a feasibility plan, a basic document that features a summary, mission statement, market analysis and required success factors. It also might include an initial cost analysis addressing pricing and potential expenses. A feasibility study is yet another vehicle to help you determine whether starting a business can work for you.

What resources are available to help business owners develop a business plan?

An abundance of business planning software is available with some programs costing less than $100. Designed to help strategize, sort and calculate related financial data, these products also generate high quality tables and charts with just a few keystrokes. Plenty of free information is available on the Internet, too, but choose this material wisely. When in doubt, consult your business bankers; they will be happy to provide the right resources and guide you through the process.
Agencies such as the Small Business Administration (www.sba.gov) and SCORE, the Service Corp of Retired Executives (www.score.org) offer detailed information on developing a solid business plan.
In additon, through TEAM (Tools, Education, Access, and Mentoring at www.calbank trust.com/team) California Bank & Trust offers a full scope of tools and information to help businesses get started and succeed. Our Business Resource Center (www.calbank trust.sbresources.com) is another valuable source of information for business owners.

How do you get started?

Most experts outline 10 key components for a basic business plan. Key components include:

  • Cover sheet
  • Table of contents
  • Executive summary
  • Company description
  • Product or service description
  • Market analysis
  • Strategy and implementation
  • Time table
  • Management team
  • Financial analysis

What should a buisness owner do with the business plan once it’s written?

  • Start by recording overall business or long-term goals on a spreadsheet.
  • Set the bar high enough to grow.
  • Make sure your goals are S.M.A.R.T.  Specific, Measurable, Attainable, Relevant and Time-bound. They must be easily identified, quantified and understood by you and your management team or you won’t know when you reach them.
  • Set quarterly, monthly, weekly and daily objectives, then record your progress.
  • Do not share or discuss goals with negative individuals. They get in the way of progress.
  • Regularly ask yourself, ‘Does this decision take me closer to or further from my goal?’

Once the business plan is established, what else can business owners do to help grow their business?

Growing a business takes commitment and systematic planning. Educate yourself. The more you learn about your industry, competitors, finances and time management, the greater your chances of success.

Betty Uribe is an executive vice president of California Bank & Trust. Reach her at [email protected]

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