How to write a business plan a lender will read

A business plan is a written document that describes your business. GOV.UK says it covers objectives, strategies, sales, marketing and financial forecasts, and that you can use it to clarify your business idea, spot potential problems, set out your goals and measure your progress.

It is not only for lenders. It also helps convince customers, suppliers and potential employees to support you. But when you borrow it has a particular job: it lets someone who has never met you understand what the business does, what the money is for and how it will be repaid.

Often, yes. GOV.UK says you’ll need a business plan if you want to secure investment or a loan from a bank, and the Start Up Loans scheme calls one often essential for securing external finance and requires one with its application.

What a lender wants to see varies. Some ask for a formal plan, others for recent accounts, bank statements and a forecast, and a lender’s own application form may set the format. Check what your chosen lender asks for before you start writing, because it can save you a rewrite. Any decision is the lender’s, and is subject to status and lender criteria.

A business plan should include a summary, your objectives, who runs the business, your customers and competitors, how you will sell, how you operate and your financials. The Start Up Loans guidance sets out these sections, and they translate well to any lender.

If you are borrowing, add one more item near the front: a plain statement of the funding you need, what it will be used for and the type of finance you are considering.

Long enough to be convincing and short enough to skim. The Start Up Loans guidance suggests keeping it to a 15-minute skim read, with only essential information in the main body and further detail in an appendix.

That is a better test than a page count. If a reader cannot find your funding request, your repayment plan and your main risks in a few minutes, the plan is too long or poorly organised. Use headings, short paragraphs, tables and charts, and cut anything that does not support a decision.

The executive summary sits at the start but should be the last thing you write, because it summarises everything else.

Present the financials as a small set of consistent numbers with their assumptions stated. If you already trade, use your historic figures; if you are new, explain your assumptions and show evidence for them.

• Cash flow forecast: the Start Up Loans guidance asks for one in the appendix. Our guide to a cash flow forecast explains how to build it.
• Historic figures: if you are already trading, show your recent actual cash flow alongside the forecast.
• Profit and loss and balance sheet: these show what the business earns and what it owns and owes. See our guides to the profit and loss account and the balance sheet.
• Funding and repayments: say what funding you need, what it is for and include the repayments on any loan you plan to take.
• Realism: look at worse-case scenarios as well as hopeful ones, so you know what could go wrong and how you would respond.

A lender is checking whether the business can afford the repayments, so a forecast that shows cash after repayments, month by month, is more useful than a headline growth figure.

You make a plan convincing by backing every claim with evidence and tying every strategy to an objective. The Start Up Loans advisers give practical tips that apply to any business plan.

1. Show that you understand your market and customer, with simple research such as a survey, industry reports or customer interviews.
2. Back statements with evidence: a statistic, a customer quote or a link to further information.
3. Link each strategy to a core objective. If the goal is a number of new sales a month, work out how many each channel must deliver.
4. Name your risks and say how you will reduce or overcome them.
5. Be clear and concise, and avoid waffle.
6. Proofread, structure the document in a clear order and keep the formatting consistent.

Tailor the plan by matching the funding request to the problem it solves. A lender reading a request for equipment wants to see the equipment and how it earns money; a lender reading a request for working capital wants to see the timing gap and when it closes.

• Equipment or vehicles: describe the asset, what it will earn and how the repayments fit the forecast. See asset finance.
• Cash flow gaps: show the pattern of money in and out, and when the gap opens. See working capital loans.
• Slow-paying customers: show who owes you what, and on what terms. See invoice finance.

Keep one master plan and adjust the funding request and the financial section for each application, so the numbers always agree with each other. Update the plan when your finances, strategy or market change in a way that matters, so it is current when you need it.

The most common problem is a plan that states ambitions without showing how they will be funded or achieved. Others follow from the same cause: the numbers and the story do not match.

• Aspirations such as growth targets with no costs, hiring or cash needed to deliver them.
• Forecasts that ignore tax bills, VAT and loan repayments.
• A funding request with no use of funds, or one that does not match the forecast.
• A copied template with generic text that does not describe your business.
• Padding. Detail belongs in the appendix.
• Leaving out the risks, which suggests you have not thought about them.

Capzy is a credit broker, not a lender, and is paid by the lender. We introduce businesses to lenders and help you present your case, but we do not write your plan, approve applications or fund them.

What each lender asks for differs, and our directory of business lenders shows the kinds of finance on offer. If you want to see what could be open to you, you can check your funding options with a soft search that does not affect your credit score. Any offer is subject to status and lender criteria. Capzy does not give accounting or tax advice, so ask an accountant to check your figures.

If you are starting up, our guide to start up business loans covers the Start Up Loans scheme, which has its own plan requirements, and our guide on how to get a business loan covers the wider process.