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How to Write a Business Plan for Bank Financing - A Credit Risk Guide

SeedAngels Team·
How to Write a Business Plan for Bank Financing - A Credit Risk Guide

Table of contents

Introduction: the business plan as a risk assessment tool

When a company applies for bank financing, the business plan is neither a marketing document nor a simple forecasting exercise. First and foremost, it is a credit risk assessment tool for the bank.

Through this document, the banker is trying to answer one central question:
is the risk the bank is taking acceptable given the company’s repayment capacity and the collateral provided?

Understanding this logic helps you build a truly effective bank business plan.

1. The business plan: a tool to measure bank risk

Unlike an equity investor, a bank is not meant to support a company’s long-term growth. It grants a loan with a clear objective: to be repaid on a predefined schedule.

The business plan must therefore allow the bank to assess:

  • the probability of default, i.e., the risk that the company cannot meet its repayment obligations,

  • the loss given default, i.e., what the bank could recover if the situation deteriorates.

These two dimensions structure the entire credit analysis.

2. How banks assess credit risk

Bank credit analysis combines qualitative and quantitative elements.

From a financial standpoint, the bank pays particular attention to cash flow available for debt service, i.e., the operating cash flows generated by the business that can be used to repay debt. For deeper analysis, see our guide on financial forecasting.

A central indicator is DSCR (Debt Service Coverage Ratio).
It measures the company’s ability to cover debt repayments using operating cash flow.

The bank also analyzes:

  • total leverage,

  • balance sheet structure,

  • consistency between the project, the financing needs, and future cash flows.

A credible business plan is one that is coherent end-to-end: a single weakness can sometimes be offset, but an accumulation of fragilities often results in a rejection.

3. Founder and governance: a key risk-reduction factor

For a bank, the founder/CEO is the first line of defense against default risk.

The business plan should therefore highlight:

  • the project leader’s professional experience,

  • their ability to manage the company in normal times as well as under stress,

  • their knowledge of the sector.

Corporate governance is also reviewed:

  • role allocation,

  • management continuity,

  • whether the business is dependent on a single key person.

The founder’s personal financial commitment (equity contribution, personal guarantee) is perceived as a strong signal of aligned incentives with the bank.

4. The funded project: clarity and traceability of funds

A bank finances a specific project—identified and measurable.

The business plan should detail:

  • the exact nature of the project (creation, development, investment, acquisition),

  • the amounts invested,

  • the expected impact on activity and cash flow.

Financing intended to cover structural losses or poorly identified needs is generally seen as risky. Conversely, a project clearly tied to measurable value creation is highly reassuring to the banker.

5. Market and business model: securing future cash flows

In bank analysis, the key question is not so much the theoretical market size as the company’s real ability to generate regular cash flows.

The business plan must demonstrate:

  • the existence of solvent demand,

  • revenue stability,

  • the degree of dependence on a single customer, supplier, or distribution channel.

A business model built on recurring and diversified revenue is generally seen as less risky than a highly cyclical model or one heavily dependent on a handful of customers.

6. Financial forecasts: measuring repayment capacity and resilience

Financial forecasts are the core of credit risk analysis.

The bank primarily expects:

Priority is given to cash and repayment capacity, more than accounting profit.
The bank also analyzes how sensitive the model is to less favorable scenarios: lower revenue, higher costs, delayed collections.

A strong business plan does not try to hide these risks—it shows they have been anticipated.

7. Capital structure and solvency

Solvency refers to the company’s ability to meet its long-term obligations.

In the business plan, the bank notably analyzes:

  • the level of equity,

  • the ratio between debt and equity,

  • the capacity to absorb potential losses.

A balanced capital structure reduces the potential loss given default and mechanically improves the acceptability of the credit risk.

8. Collateral and security: mitigating residual risk

When risk cannot be fully eliminated, the bank seeks to secure it through collateral.

Collateral can take different forms:

  • the founder’s personal guarantee,

  • pledges over assets (business assets, shares, accounts),

  • a mortgage on real estate,

  • support from a guarantee institution.

The bank assesses the quality of the collateral: its real value, its liquidity, and how easily it can be enforced in case of default.

It is important to remember that collateral does not replace a viable project; it is the last line of defense.

9. Overall balance of the credit file

Bank analysis relies on a holistic view. No criterion is assessed in isolation.

A file can be accepted despite some weaknesses if the overall balance is satisfactory:

  • more equity can offset less collateral,

  • an experienced founder can offset a riskier market.

The business plan then becomes a tool for dialogue and negotiation between the company and the bank.

Conclusion: a risk-oriented bank business plan builds trust

An effective bank business plan is a document that speaks the banker’s language.

It does not aim to embellish reality, but to:

  • identify risks,

  • demonstrate repayment capacity,

  • mitigate residual risk.

By making risk readable, measurable, and controlled, the business plan becomes a real trust-building factor and significantly increases the chances of obtaining bank financing.

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