One of the most frequent mistakes people make when starting a small business is neglecting to write a proper business plan, according to lenders.
Without a detailed projection of expenses and sales, loan officers may snub the budding entrepreneur.
Vern Warkentin of the Royal Bank in Lethbridge, Alta., said many people redirect money from their farm operating loans or set up a personal line of credit to start a business. Those can be obtained without a lot of security and each loan is examined individually, he said.
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“If the project looks like it may not be self-supporting, the bank may look for other assets,” he said.
Expanded mandate
Others approach the Farm Credit Corporation, which has expanded its mandate to finance diversification projects.
To be eligible, FCC regulations stipulate one of the partners or shareholders must be connected to the farm.
FCC loan officer Pat Palaschuk of Regina said a plan is critical to getting financing.
A detailed, well-written plan indicates those involved have evaluated all aspects of a project.
If the borrowers seem somewhat foggy on what direction their idea should go, staff at the FCC will help write a plan and give advice on how to start a project.
When looking at a loan request, the FCC wants to know what the project is, who the owners will be and how much money the investors are contributing to the project.
The loan officer also wants a marketing plan that outlines where raw products will come from, how the finished products will be sold and who customers will be.
There isn’t a minimum or maximum loan amount, said Palaschuk. A business plan with projected sales should make clear how much debt a project can carry.
“We analyze every project on a project by project basis. The projects really restrict themselves on the amount you can lend them,” she said.
