Writing a business plan is not a chosen activity of most prospective small business owners.Formerly there was no way to secure financing for your business without a business plan. The traditional rule of credit has been that if you want to grow and operate your business you will need a business plan to find capital. Today, this is quickly changing as more and more business owners learn about business plan-free financing. This business plan free financing has occurred as change has swept through the banking industry. Information technology is literally altering the face of small business lending. What used to be a relationship based industry between small business and banking is not becoming irrelevant. The decision of loan approval is now mostly determined by a computerized credit scoring program unless a business requires a loan or credit product over $100,000.This has eliminated or at least reduced the need for a business plan.If you are a prospective business owner here is what you need to know about how to finance your business without writing a business plan-
- Forget about writing the business plan-In this new way of banking credit scoring removes the need for a business plan and only financials are required. In addition no business plan means a large saving of time or money as opposed to hiring a business plan consultant or doing it yourself.
- There is quick money-Because opportunities are limited this faster access to capital allows a business owner to capture a window of opportunity before it closes.
- There is reduced subjectivity-Doing small business financing reduces the subjectivity of the loan process. This credit scoring system would remove any bias that could be present in the decision-making process. The major downfall of this type of lending is probably found here.For small business owners your relationship with your banker may still be beneficial but less so on the credit approval side. Also, the lack of planning can place more risk on your business decision process.
In light of this new type of lending there are certain strategies that small business owners should be aware of.Making them part of your financing plan can help insure success in getting the financing that you need.These strategies are:
- Thoroughly assess your credit history-It is crucial that before making any loan or credit application that you obtain your credit report. Then you should inspect it completely for any errors or omissions.
- Realistically determine your needs-You will need to assess your credit needs and if the amount needed is closer to $100,000, apply for $110,000 or more. Keep in mind that if the bank wants a business plan, it may not be using a credit scoring model.
- Ensure all data integrity-It is crucial that no matter what amount you are applying for you should go over all questions for the loan or credit application. You should be assured that the data you provide is accurate and ask questions to understand the information in the application.
- Review your industry codes-You should also make sure that you provide an accurate description of your business. Remember that an inaccurate coding can alter the outcome of the approval.
- Choose a big bank (or two)-You should consider the type of bank you select when applying for the loan. Keep in mind that a larger bank or institution will use the automated credit scoring system more than smaller institutions.
The new changes to the small business lending market represent a highly intensifying competitive industry. Even some non-bank players (lenders) are forcing banks to adapt to the market or lose market share. For the small business owner, this means a greater choice and service as all types of lenders wake-up to the size and power of small business.