In terms of granting and monitoring credit, the European Banking Authority (EBA)¹ requires credit institutions to obtain all necessary information from companies requesting financing for a "forward-looking" creditworthiness assessment: the Business Plan (BP) becomes crucial to meet this regulatory requirement.

We have already discussed the importance for an SME of preparing a robust and credible BP, and the challenges that may arise in this activity (see here – insert link to the article on BP). In this article, we will therefore focus on the usefulness of the BP in the process of obtaining financing.

EBA Regulations and Bank Requirements

As mentioned earlier, the regulations require that companies requesting financing must present a structured BP, developed at least for the financing period, containing all investment assumptions and projections for income and balance sheet items, clearly demonstrating the company's ability to meet all obligations related to loan repayment².

The document is the starting point for the bank's forward-looking creditworthiness assessment of the company. Specifically, the key points of the regulation include:

• Credit Risk Assessment: banks must analyze the company's repayment capacity throughout the financing term.
• Business Risk Analysis: identify and mitigate key risks through the BP.
• Assumption Transparency: the BP must be accurate and provide complete, verifiable, and replicable information.

In summary, the BP becomes crucial during the loan evaluation process to obtain financing.

How to Draft the BP to Reduce Processing Times and Increase the Chances of Success?

Careful drafting of the BP increases the chances of success in obtaining financing for an SME and certainly improves the relationship and communication between the bank and the company. Here are three fundamental aspects to consider when drafting the plan.

1. Format. The first aspect is the choice of drafting format, both in terms of reclassification of Income Statement (IS) and Balance Sheet (BS) items and in terms of the file to be sent to the manager; in most cases, the bank uses a standardized format obtained directly from the Central Balance Sheet Office, allowing it to compare the main IS and BS items of the company (e.g., Revenue, Costs, EBITDA, etc.) and calculate the most relevant indicators (e.g., DSCR). Starting with such a reclassification format for the BP would therefore make communication between the company and the bank much easier, reducing operational risks and data processing times. When delivering the document, both Excel and PDF formats can be prepared.
2. Hypothesis Development. Discretion in choosing the assumptions underlying the development of a BP is not necessarily negative, quite the opposite. However, it is essential that the assumptions underlying the projections of balance sheet items are clearly explained, reasonable, or at least easily explainable. Another essential characteristic in future projection is the guarantee of consistency (i.e., the balance sheet must always balance). The company must therefore equip itself with tools that guarantee real-time calculations of financial-economic items and, at the same time, carry out consistency checks on the evolution of these items so that the result is always a balanced balance sheet.
3. Replicability and Stress Test. Another fundamental aspect for banks is the ability to easily replicate the BP by modifying a few assumptions or, as often happens, applying very adverse economic-financial conditions (i.e., stress test); it would therefore be very useful for the company to produce a BP capable of generating more than one scenario compared to the "base," considering both improving and, above all, worsening conditions to provide the bank with the most comprehensive possible view of the evolution of assumptions in different market contexts.

Technesthai offers SMEs the ideal tool for creating an effective forecasting plan, which includes all the above characteristics while minimizing processing times and operational risks for the company, with the ultimate goal of facilitating the financing process.

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