2 Key Elements of Financial Modeling for a Bank Loan Business Plan

 

Just like for financial projections, you need to base your financial model for a bank loan business plan on the three statement model, which consists of the income statement, balance sheet and cash flow. Alongside with the three statement model, making assumptions is the key for Financial Modeling . While there are many other elements of financial modeling, maybe none are more important than these two.

• Making assumptions

Assumptions are the foundation of financial modeling. So dedicate some time to considering them and committing them to paper. You will need to have a wide scope of assumptions from best to worst case scenarios in order to make a proper financial model for your Bank Business Plan . Brainstorm all of the possible outcomes you can imagine.

Making correct assumptions about the future financial state of your business is important for constructing the most optimal financial model. Therefore, before you start making your assumptions, collect all of the information you can find. Go through your own company records, conduct market research, search through public archives. The more information you can find the more accurate your assumptions will be.

While the future is hard to guess, preparing for a multitude of different outcomes based on facts will benefit you in making the best bank loan business plan.

• The three statement model

After making a list of assumptions, continue your financial modeling by forecasting your three statement model.

• Income statement

A forecasted income statement will predict your business future revenue. By comparing all of your revenue and gains to the total of your expenses, they show if your business will be able to make a profit or will be at a loss. This will be one of the most important things to present in your bank loan Business Plan . You will need to provide loan officers with proof that you'll be able to repay your debt, and an income statement is the way to do it. Managing a steady income is one of the things loan officers are expecting from your business.

• Balance sheet

Loan officers take careful consideration when choosing the right candidate for a loan. Banks do not take risks, and always do risk assessments. But even if candidates have good credit scores they still need to show what they have to offer as collateral. Collateral is usually in the form of assets that can be seized in event your business fails and you are not able to repay your loan.

This is why balance sheets are useful when doing your Financial Modeling. They show your business’s assets, shareholder equity and liability. For this reason, a balance sheet shows loan officers proof your business is financially stable and reliable, as well as

what you have to offer as collateral.

• Cash flow

Cash flow calculates the difference between inflow and outflow of money. This will show you how much money you will have on hand at any given moment. It compares all of the revenue you make from sales and all possible expenses you will have. Making sure you do not run out of money before you pay your loan fees is not only the key to running a stable business but also a requirement for getting a bank loan.

Financial modeling is a long number crunching process that has many elements and steps to it. But if you are making a financial model for a Bank Business Plan, pay extra attention to the assumptions you make and the three statement model, which are the key elements to getting a loan for your business.