Commercial Loan Basics: Developing a Business Plan

By Karl Wernick

One of the first things a loan officer likes to see when making a commercial loan is a business plan. Why? It’s a “blueprint” for business success!

Imagine you are ready to build your dream home. Would you tell the contractor to “build me my dream home” and hope that his idea of a “dream home” is the same as yours? What if you’re thinking of a spacious rambler, with 5 bedrooms, a huge great room, game room, indoor/outdoor pool, 3 baths, a Jacuzzi, huge windows and a walk-out basement sitting on a knoll overlooking Cache Valley whereas his vision is a 3 bedroom multi-level sitting on 5 acres right next to a dairy farm (with the accompanying “fresh” air)? How can you ensure that the contractor actually builds your vision of a dream home? By using a blueprint and adequate planning.

You will meet with an architect, explain what features you want and he will draw up a blue print. After several meetings with the architect the blue print will undergo many changes. (You want a bigger walk-in closet, larger bedrooms but a smaller living room, stairs centrally located rather than on one end of the house, etc.) Finally, when you are satisfied with the plans you will hire a contractor to construct the home and if you hire a good one you can expect that the finished product will actually be your “dream home”.

Businesses also need a blue print, a business plan, if they want to succeed. Before starting a business the entrepreneur needs to ask him or herself questions such as:

• What service or product does my business provide and what needs does it fill?
• Who are the potential customers for my product or service and why will they purchase it from me?
• How will I reach my potential customers?
• Where will I get the financial resources to start my business?

Keeping these questions in mind the entrepreneur should then prepare the plan being sure to address the following:

The Business – Description of the product(s) or service, marketing, competition, operating procedures, key personnel, business insurance, etc. (Keep in mind that a successful business needs expertise in marketing, finance, accounting, and personnel management, as well as the ability to provide a valuable product or service.)

Financial Data– Loan application, equipment and inventory list, balance sheet, profit and loss statements, income projections, cash flow projections, assumptions upon which projections were based, break-even analysis, etc.

Supporting Documents – Three years personal tax returns for all principal owners, personal financial statement(s), copy of proposed lease for place of business, copies of professional and business licenses and other legal documents, resumes on all principals, notice of intent from suppliers (of inventory and equipment being acquired to start business), for franchise operations – a copy of the franchise agreement and disclosure.

The business entrepreneur may say “Wow, that’s a lot of information!” and he would be absolutely correct! However, just as he would want to plan construction of his “dream home” with minute detail, he should plan for business success with great detail because better, more complete, information generally makes for better decisions which, in turn, breed success. “So,” the entrepreneur asks, “what if I don’t prepare a plan?” The results are best described by the title of a book by David P. Campbell, “If You Don’t Know Where You’re Going, You’ll Probably End Up Somewhere Else”.

Contact our business lending office at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or at: 435-713-1887 and let us answer all your questions and give you all your options.