Commercial Loans and Business Plans Considered

It’s not easy to write a business plan, but it is paramount that entrepreneurs do so. For instance, consider if you will the type of folks who are entrepreneurs – gregarious types of individuals, who are probably not very good with the fine details as accountants are. Therefore, they often have trouble preparing business plans. Nevertheless they need to do this so they understand what they’re getting themselves into, and evaluate their potential business opportunities appropriately without allowing their optimism to run away with the game.

Over the years, since retirement, I have helped various entrepreneurs in their businesses, and often they need to get funding or financing to start these endeavors, so they go and look to get a commercial loan. The bankers know that entrepreneurs aren’t very good at writing business per-startup plans, so generally they except business plans which are half baked, or in the case of the small business administration, they have a form which is filled out by the entrepreneur in place of the business plan, it’s about 13 pages.

However, a decent start-up plan could easily run 40 pages including the proformas in the back. It seems to me rather than making it easy for entrepreneurs to get commercial loans and therefore requiring less than adequate business plans – that we should be moving in the other direction, stipulating that the business plans the very well done. Indeed as a taxpayer I am concerned that my tax dollar will subsidize the SBA loan program. And many of these loans fail, but right now the taxpayer and SBA guarantees 90% of the loan with the local banks which make the SBA loans.

Since the bank has very little risk because the government is guaranteeing 90% therefore they are only on the hook for 10%. Are you beginning to see the problem with this? If entrepreneurs and small business people can’t prepare start-up plans, and they aren’t sure what they’re getting themselves into, why an Earth is the SBA and commercial business banks providing more rope for these future business owners to hang themselves with? Indeed that makes no sense at all does it?

Perhaps, this is why I often tell entrepreneurs to create a business startup plan, then look at the real numbers, and play devil’s advocate a little bit against their overbearing opportunistic enthusiasm and hyper drive optimism. Indeed, I hope you will please consider all this and think on it. If you have any questions, comments, concerns, or even case studies, I would be glad to hear about it. Please shoot me an e-mail.

Lance Winslow is a retired Founder of a Nationwide Franchise Chain, and now runs the Online Think Tank. Lance Winslow believes writing 23,300 articles by May 23, 2011 is difficult because all the letters on his keyboard are now worn off.

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