Business plans are crucial to the success of a new business, especially when the new business needs to obtain investors or financing. The financial part of business plans is usually the most important part when it comes to funding a business venture. There are many types of financing for a new business with good, clear business plans.
Most all new businesses need additional money during the startup phase. Financing needs may continue through the early years of the business. An established business may even need investors or bank loans for new equipment, business expansion, or relocation. Business plans are vital in obtaining funding for a new business or even an established business.
A secured loan is the most common type of business loan. With a secured loan, the business puts up some sort of collateral to “secure” the loan. The value of the collateral usually exceeds the amount of the loan. This makes the loan secure as the funding source can take possession of the collateral and sell it, even at under face value if necessary, to pay the loan if the business defaults.
If the business does not have adequate collateral to secure a loan, sometimes the funding source may accept some business collateral and some personal collateral of the business owner to secure the loan. In this type of arrangement, credit history is important. Business plans are commonly requested when a business applies for a secured loan. Business plans give the funding source an idea of where the business has been, currently is, and the business's future plans.
A non-secured loan is not secured with collateral, although sometimes a non-secured loan may be secured with a small amount of collateral. Qualifications for a non-secured loan usually depend on the personal credit history of the business owner. It is difficult to obtain non-secured loans for a business without business plans. Even with business plans, the loan amounts are usually less than with a secured loan. In addition, the interest rate and other factors are typically not negotiable. The advantage of non-secured loans for businesses is that property is free from being used as collateral, ensuring the business stays clear of any possible liens as with a secured loan.
A government loan may be available some businesses from the Federal or State government, especially for women, minorities, and in certain industries. The Small Business Administration does not give loans, but through the review of business plans, will secure or guarantee a loan made through a bank. Business plans are mandatory when applying for a Small Business Administration sponsor loan. Personal credit history is also important in government loans.
A loan from a private investor is a popular new form of business financing. Investors are always looking for good investments for their money. A business owner can usually obtain favorable terms from an investor. Sometimes the investor may want to be a partner in the business, contributing money for a cut of the profits. Always have an attorney draw up an agreement when obtaining funding from private investor. Business plans will be part of that agreement.
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