Apart from the business owner, those that will also read your business plan or section of the business plan will most probably be key employees, the board of directors and shareholders, selected business partners, and current or prospective lenders and investors. Which parts of your business plan should be distributed to which persons depends on its confidentiality and on the particular responsibility of the persons concerned. If you include in your business plan confidential strategic decisions or secrets, you should be restrictive in distributing copies of it. Give it only to persons who you are confident will not pass on information without your consent. In some cases, you may request the recipient to sign a confidentiality declaration.
Some of the most important target readers may well be potential lenders or investors. If you are looking for outside financing to develop your business, there are many possible sources you can approach with your business plan. The most important of these are the following:
Commercial banks: Commercial banks provide loans to viable businesses on standard market terms and conditions. They are normally very risk-conscious and require adequate coverage by means of collateral. This may consist of, in the order of preference of the banks, cash accounts, precious metals, tradable securities, infrastructure (land, buildings, machinery), accounts receivable and inventory. If some of these assets are accepted as collateral, the bank may require the loan to be covered with 200 per cent or more of their value. The interest rate depends on the prevailing macroeconomic conditions in a country, but also on the risk the bank attributes to a project. Experience has shown that interest rates demanded by commercial banks in some countries can often be too high to be really supportive of the development of a business.
Private investment funds: Recent years have seen a rapid increase in the number of private venture capital funds that operate on a commercial basis. The objective of these funds is to make a profit, and they will scrutinize your business until they are convinced that they can get substantial return on their equity at a calculable risk. A particular advantage of such funds, as compared with bank loans, is that they can finance your business by placing equity without requiring collateral. On the other hand, they will expect a good share of the profit and will demand a control function in your business, for example through appointing one of their staff members to the board of directors of your company.
Development funds: Such venture capital funds are established and supported primarily by Governments or governmental institutions and have a social and macroeconomic development objective. Particular characteristics of these funds are:
- They are willing to take more risks than commercial/private venture capital funds.
- They participate in the business only for a limited period of time. They exit when the business is financially self-sufficient.
- They particularly favour businesses with special social and environmental benefits (creating many jobs, including a strong value-added component, transferring a substantial amount of know-how, being friendly to the environment, etc.). Therefore, if you address yourself to such a fund you have to cover these issues well in your business plan.
Nevertheless, most development funds, like all other funding institutions, are only ready to finance a project if the business plan shows the viability and profitability of the business.
Multilateral development institutions: Among the most prominent multilateral development institutions are:
- Bank of Industry (BOI);
- Bank of Agriculture;
- Central Bank of Nigeria;
- The International Finance Corporation (IFC), which is part of the World Bank Group located in Washington, DC, United States;
- The European Bank for Reconstruction and Development (EBRD), located in London, United Kingdom;
- The African Development Bank (ADB), located in Abidjan, Côte d´Ivoire.
The share capital of these institutions is held by many Governments. Their common goal is to assist the social and economic development of the regions they cover. Their philosophy and their objective are similar to those of the development funds mentioned above. They tend to finance directly large projects (with equity and/or loans) and they also cover smaller investment projects through intermediaries such as local commercial banks and leasing companies.
Private investors: Private investors are usually independent and wealthy individuals who are seeking opportunities to put money in promising businesses.
Their incentive is to get a higher return on investment than on marketable securities or investing in a fund. Quite often they allocate a percentage of their fortunes for start-up or expansion projects. Placing money in diverse businesses reduces the overall risk in their investment portfolio.
Technical assistance credits/grants: Depending upon the type and location of your business, there may be some possibilities to access government funds that provide soft loans or grants. Typical examples of applications for such soft loans or grants are for training your personnel, preparing a feasibility study, implementing a pilot project prior to an investment, and making environmental protection-related improvements.
Nevertheless, even for a grant, the donor will most probably assess your business plan before taking a decision. Donors wish their grants to be given only to well-planned and viable ventures. They rightly believe that these are the ones that can have a substantial social, microeconomic and macroeconomic impact.
Credit: Utibe Etim
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