A business plan is a lot of work. Between the industry, market, and competitor analyses alone, you’ve got to do a bunch of research and write pages of text. It makes you wonder if a one-page business plan is enough for a bank loan.
With some business plans reaching into the hundreds of pages, it makes you doubt anyone is going to read the whole plan.
On top of that, if the executive summary is a summary of the whole plan, you would not be alone in wondering why you need to write a full business plan.
If you’re a large, well-established company with a bank that is familiar with you and your business, one page might be enough. For most businesses, though, a one-page business plan won’t be enough for a bank loan.
Let’s talk about why a one-page business plan isn’t usually enough, how long a business plan for a loan should be, whether the banker will read the whole plan, and when a long-form business plan isn’t needed.
Why can’t I just write one page summarizing my request?
So, you’ve read that investors can make decisions based on slick pitches, decks, and one-page executive summaries. Though this may or may not be right for investors, banks want more.
You need to prove that you’ve done a thorough analysis of how you plan to make or increase sales and what will drive that revenue into the future.
You’ll need to anticipate your growth needs and explain the capital expenditures you’ll make, why they’re necessary, and when you’ll make them. You’ll need to show that you know who your competitors are and why you’re better.
Do you know who are your customers are, where they’re located, and how you’ll you get them to buy?
Simply put, you’ll have to answer all the questions the banker, the commercial manager, and the credit officer could ask. You just can’t do that with a one-page business plan.
You might be saying, “But I can tell the banker all of these things in a meeting!”
Good, you’ll need to do that too. You should be able to give all the answers readily in the meeting with the bank, but you still need the business plan.
The banker will take the plan back to their office, read through it, find the information they know their credit officer will want to know and use it to write their credit analysis memo.
They may even pass it along to their manager for initial input, or provide it to the credit analysis department to use during underwriting.
Think of it this way, the memo a banker will write to get his credit officer to buy into your deal will be multiple pages, don’t you think your business plan should be longer than just one page?
The optimal length of a business plan for a bank loan
So how long should your business plan be if one page is too short? The answer is simple, but probably not satisfying.
It should be as long as it needs to be.
That’s to say, if you’re business is a combination restaurant, nightclub, doggy daycare, and yoga studio, you’re going to have to write a much longer business plan than a mattress store owner for example would.
The mattress store just sells mattresses. Simple and straight forward.
When you have multiple business segments, especially those that are unrelated, you’re going to need to do a lot more work.
For example, your customers may be different for each segment. Market analysis for a hotel will be different than that of a yoga studio or a doggy daycare. You’ll need to analyze each one of these segments separately.
Also, the operations, the management, the employees, and the marketing and sales strategies are all going to be relatively different, and you’ll need to present them individually. It will be like writing a small business plan for each segment.
Typically, full business plans can fall between 20 and 50 pages if the business models are relatively simple, with one to two segments. The plans that I write tend to fall into the upper range of that spread.
One of the longest business plans I’ve ever seen was hundreds of pages. It was a hotel that had a commercial gym, two restaurants, a mini-golf course, an 18-hole golf course, and a spa. The writer had to present each segment individually. They discussed the services, personnel, and facility, as well as the performance history and anticipated future performance of each one separately.
That was an extended plan because it needed to be. Just remember, the more business segments you have or, the more complex the business model, the longer the plan will be.
Will someone take the time to read it if its more than one page?
I once worked on a deal for one of my banking clients that involved the construction of multiple commercial properties. We presented the analysis in one large 100+ page package. At the time, it was the longest credit analysis ever completed in the bank.
It was a beast to get through, with the credit analyst and I dedicating weeks to get it ready to present to the bank’s senior loan committee.
While presenting, it became apparent, based on the questions they asked me, that most of the committee didn’t read the whole package.
All the answers were there in the analysis, but they had no time to read it all. Each one read the sections that they thought were important and skipped the rest.
So, does the banker sit down and read through the whole business plan from cover to cover?
Well, the whole thing? Maybe not.
They may just read the sections that’ll be relevant for their credit memo. They may just skim through the other parts. Some readers will only be more interested in individual sections.
The commercial lender is probably going to be more interested in your financial analysis, past performance, experience as a business owner and operator, than the industry sales figures, product segments, and personnel salaries.
Each reader will look to your business plan to answer their questions. For that reason, you’ll need to cover everything and in as much depth as is required.
When is a one-page business plan or even no business plan okay?
There are reasons that the bank may accept a short business plan, or even not require one at all. More than likely, though, you would already know if these apply to you.
If you have a long-standing lending relationship with a bank that already receives your annual financial statements, personal financials, and tax returns, and has a complete understanding of your business model, you probably won’t need a full business plan.
This is particularly relevant if you’ll use the loan to expand your current business operation. If you’re an excavation contractor and you want to open a restaurant, you’ll probably need a business plan.
It also helps a lot if you are a personal guarantor with a high net worth and have the liquidity to cover the outstanding debt.
If you’re one of these large established players and you want to increase your line of credit or need equipment to execute a sizeable new job, you’ll just have to call your relationship manager and explain what you need and why you need it.
The lender will gather the information over the phone or at a meeting and write a memo. You might not even need to provide any projections.
This is ultimately the relationship a business owner should strive to build with their bank. Once you get to this point, getting a loan is a whole lot easier.
Until then, you’ll need to put in the work, or hire a writer, to create a thorough and comprehensive business plan that’s much longer than one page.