Business Plans For Bank Loans: Why Rejection Happens

According to a report from the U.S. Small Business Administration (SBA), more than 4 out of 5 companies seeking capital failed to get it.  Poorly prepared business plans are a key determinant in these outcomes.  When an underwriting review request comes in and we request production of the business plan, what we get 99 times out of 100 is the promoter’s capital funding solicitation.  This is the document you send to interested business plan of operationsparties that summarizes your proposal to obtain funding and is not a business plan that demonstrates the means and methods by which the promoter of the business is going to manage execution risk and mitigate the potential exposure of loss severity risk owing to the investment.  To make matters worse, promoters just can’t help making unsubstantiated claims in their capital funding proposals and this typically leads to an immediate rejection without further consideration.  You want to know why your golden opportunity keeps getting rejected?  Your business plan is likely to be the reason and this costly sin is completely avoidable.

The decision to make an investment boils down to confirmation of two (2) key issues: (1) does the evidence show the market opportunity exists for the deployment of capital? and (2) if the capital is provided to the promoter, will the company be able to make it happen and deliver on the promised return?

The first issue is pretty straight-forward: either the market evidence can demonstrate to a reasonably-conservative third-party that a reasonably-conservative independent business-plan-capital-financingassessment concludes the opportunity exists or the opportunity does not exist.  If it does not, the process stops right there and that’s the end of the due diligence review.  If it does, then the second issue becomes the focus and it can be extremely subjective in nature.  The credit underwriting and default risk underwriting review processes are used in combination to answer the second issue, and while the resolution of the execution risk management and loss mitigation issue can be highly subjective in nature, the historical approach has been to use subjective criteria in an attempt to resolve the issue.  Failure is the only outcome in most cases (say, more than 4 out of 5).

The issue boils down to what the expected outcome of future operations would be if the promoter (or any other employee of the business for that matter) is removed from the equation.  Will the operations derail and create the potential for investment losses or risk-management-program-screenshotnot?  Can the promoter provide documentary evidence there are formal plans, policies and procedures in place such that a reasonably competent person could pick up where the previous employee left off and continue operations in a relatively short period of time or not?  This is the core issue surrounding execution risk management and the mitigation of future potential investment loss severity risk events.  If no such evidence exists, then the assessment becomes completely subjective and that is where you lose the game.  The answer is no financing for your business and you have to face the fact your golden opportunity is just not golden enough to be a real opportunity.

The INVIZEN approach (view INVIZEN IT Business Plan Sample) offers an end-to-end solution for managing and mitigation of execution risk as well as a variety of other subjective financial investment risks in a real-time, proactive environment that follows your business from concept stage all the way thru to that wonderful day when it is sold for a (hopefully) huge profit.  If you don’t have it, then you need to ask yourself why you are in business – is it to make money or impress your friends?  Contact an INVIZEN representative today at 832.663.9634 to get some real answers to underwriting, funding approval, business management and risk management facing your company today.

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