6 Types of Financial Modeling in a Bank Loan Business Plan

 

Financial modeling to a bank loan business plan is like milk to cookies. When applying for a bank loan you need a bank loan business plan, and your document needs to contain financial projections which can only be created through Financial Modeling. It is a crucial section of any business plan.

Financial modeling is like a built-in spreadsheet tool created in MS Excel, that forecasts a future financial performance of a business.

There are more than a few types of financial modeling.

Here are 6 types of financial modeling for a Bank Business Plan or other business plans and documents you may need.

Three – Statement Model

This is the fundamental financial model. As the name says for itself, there are 3 linked statements with formulas in MS Excel. These three statements are:

- Income statement

- Balance sheet

- Cash flow

To link these three statements, you need to have strong accounting, finance, and Excel expertise.

Discounted Cash Flow (DCF) Model

This model builds on the previous three statements (income statement, balance sheet, and cash flow). Discounted cash flow model estimates the value of your business. DCF model takes cash flows from these three statements, and with the XNPV function in MS Excel, discounts them back to today at the company’s Weighted Average Cost of Capital.

Merger Model (M&A)

M&A is a more advanced financial model. This model represents the final result of combining two companies into one through an M&A process. A new consolidated entity forms under a mutual agreement between these two companies.

The merger model occurs when one side proposes to offer cash or shares to merge with the other company.

We often use this model in investment banking and corporate development.

Initial Public (IPO) Model

We use this model in investment banking and corporate development to value a private business before going public. The initial public model compares equivalent company analysis and assumpts how much investors will pay for a specific company.

Leveraged Buyout (LBO) Model

This model evaluates a leveraged buyout transaction. LBO is the purchase of a company that is funded by using a great amount of debt. With the cash flow of the company, the company can pay down that debt. The exit cash flow of the company, exit multiple, and the paid-off amount determines the total return achieved by the investors in an LBO. This is an advanced form of financial modeling that requires strong financial skills.

Sum of the Parts Model

You build this type of model by taking different DCF models and linking them together. Any further components of the business that are not complementary for a DCF analysis will be added to that value of the business. For example, if you add segment A, segment B, and segment C of the business, you will get the total company value. Before the modeling, you need to determine the business segment and the valuation for each segment.

We still can not predict the future, but financial modeling can help predict the future of your business. These 6 types of financial modeling can help you compose a successful Bank Business Plan for your needs. If done well, your chance of bank loan approval will increase.

Not all of these models may be needed specifically for your bank loan business plan but, understanding them and being able to include them when appropriate will enhance any document.

But, if you are not familiar with accounting, finance, and Excel, business experts at companies like Joorney can help create perfect Financial Modeling for your company’s needs.