It
isn't unusual for small businesses with modest resources to be worried
at the thought of facing their bank manager, to apply for business
financing. Why it is so is obvious; no matter how long you have been
with your bank, you will need to conform to formalities with regards to
funding your business start-up or business growth. Basically, you will
be asked to document a business plan for financing, which must be
presented with your application form. You may be curious as to why you have to present a business plan to lenders or investors when seeking innovation funding. To find that out just ask yourself - Why banks require that you should formulate a business plan? Then you will make sense of why investors demand this valuable document that will cost you some time and money to assemble. However, at the end of the day, if done well, it will allow you to raise the required finance.
Why Banks Require A Business Plan
Through innovation funding of your business banks are taking a risk and want to fathom that risk and, compare it against the expected reward from your venture. Do you know how banks create wealth for their shareholders? They do it by investing their capital (money, usually investors' funds and borrowed funds) in your enterprise. And doing so they hope to earn higher returns than the costs they need to pay, for borrowing or raising capital on their own. If you are unable to provide the desired returns on their investment, they will eventually become a casualty of your problems, which will cost them their business.
Banks want to fully understand the management team you have picked, to manage the funds invested in your business. This is a concept most enterprises don’t discern fully. They may believe their business ideas or superb products are good enough ingredients for business success. This is far from the truth. An enterprise consists of integrated functional activities created to achieve a coveted target. These integrated activities must be handled ably by various individuals inside or outside the organization to realize the desired successful results.
Conclusion
To conclude, the banks or investors want full assurance that your business model is strong.
