How much to apply for in your business plan?

A business plan for loan funding purposes, be it for a franchise, start-up or for a continuing business eventually narrows down to a total funding figure. This is the amount you as the entrepreneur require from the financiers, investors or your bankers in order to implement your business plan.

But how do you arrive at this figure? What is it made up of? These are important questions that need to be answered as well as strongly justified in the business plan presentation.  Most South African funders do not offer bottom less pit funding. Rather they operate on set and researched lending limits.

How to get that figure?

It is your duty to research the maximum amount you can get to financé a certain level of business . With this financing information obtained it is important to determine how much you need and for how long?The following few steps can guide you.

  1. Gather information on costs of all capital expenses (including freight, installation etc.) you will incur.
  2. Determine monthly expenses you will incur as you run the business
  3. Estimate the first month you will be able to finance monthly expenses from monthly sales
  4. Add the capital expenditure figure and the monthly expenses figure for the number of months you need financed.
  5. Roughly this should give you a total financing figure.

It is important to present this information effectively in your business plan. Usually this information goes in the introductory phase of your document where you mention your funding needs.

Funding categories involved

As you have noted the funds required by a business can be divided into 2;

  • Capital expenditure (for purchase of capital goods .g. equipment, machinery, furniture)
  • Operational expenditure (also known as working capital)

Always mention how much you need for each of these as financing methods for working capital and capital expenditure differ. Working capital is commonly financed through bank overdrafts when banks are involved whilst capital expenditure is financed through outright loans or other arrangements such as asset finance.

Important tips

Remember the following tips:

  1. Always check you financier’s limits in terms of funding.
  2. Always justify the amounts you require for funding.
  3. Never apply for inadequate funds as underfunding has been cited as a common cause for business plan implementation failure.
  4. Never apply for funds above your business excess as they can place cash flow strains in the future.
  5. Always ask for a loan repayment grace period. Enquire the maximum grace period you can get. This will give you adequate time to implement your business plan without worrying much about repayments.
  6. Your repayment duration should be well planned, making sure you will not offer to pay what your business cannot afford to pay.

Also remember, most of funding terms from banking institutions accommodate a certain level of flexibility. Research on this flexibility and get the best out of it. Also remember, even when relying on a business plan consultant, the most important input always comes from you.