Business Plans: Capital Financing Approval Potential Maximized

Commercial real estate developers and promoters (as well as other businesses) seeking capital financing start the process with a business plan.  Sadly, more than 4 out of 5 proposals end in rejection.  The most common reasons why business plans are rejected include:

  • The business plan fails to demonstrate execution risk management and loss event mitigation (you didn’t how you are going to prevent investment and/or loan losses if the promoter or any other employee leaves the company and the next person has to pick up the ball and run with it).  No ability to demonstrate operations management equals no money (i.e.: you don’t have a comprehensive business plan of operations to back up your claims of a great investment outcome).
  • The business plan contains hyperbole that cannot be independently verified (e.g.: “our property will be the best in the market…”).  Unsubstantiated claims equals no money (you demonstrate due diligence compliance risk).
  • The business plan is not backed by independent due diligence documentation (no feasibility study, no business plan of operations, no enterprise risk management plan, etc.).  No third-party credibility equals no money (you don’t have anyone backing up your claims).
  • The business plan doesn’t provide the necessary financial statements that comply with GAAP.  No complete financial presentation equals no money (you fail to demonstrate you are serious about accounting at a fundamental level).
  • Grammatical construction errors or misspelled words in the business plan.  No plan construction expertise equals no money (you fail to demonstrate your are serious enough to provide a plan written proper English).

The aforementioned list contains the “deal-killers” that result in either automatic rejection or being put at the bottom of the stack.  Lenders only make money when the loan is sold into the secondary market (they make little if anything on origination) so you have to demonstrate you can manage a variety of risks to be given serious funding consideration.

If you are serious about obtaining capital funding (equity or debt) then you need to get serious about what is in your business plan.  Remember: all we know about your company’s abilities and commitment is what is in your business plan.  If you don’t know, then find out.  If nothing else, feel free to reach out to a member of our underwriting team and ask for some free advice.

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