Published On: Fri, Oct 13th, 2023

Risk Auditor Jandroep: Why financial entities reject business plans

An everlasting phenomenon is that new entrepreneurs are confronted with the bottlenecks of finance assistance. A business plan is required to illustrate the idea, and the envisioned financial benefits of the new commercial venture.

The bottlenecks:When a business plan is developed it gains a very general characteristic in regards to the operation. It outlines the objectives on short and medium term goals with the hypothetical measurement on how to achieve the set goals.  If the financial institution does not feel at ease with the outlined “success keys” in the presented report or possible overinflated figures, it is subject to dismissal by the financing body. The statistical ratio shows that approximately 22 to 27% of applied business loans for small businesses are rejected in the European Union countries in the last 3 years.

There are several motives for the basis of rejection: incompleteness, unsupported success keys, not thorough enough, unrealistic financial scenario and target market inconsistency conditions of the business plan.

Strategic Risk Plan v.s. Business planThe Strategic Risk Plan gives a clear idea on how the company will address realization of the objectives in the operating, financing and investment fields, the existing or recurring risks, commercial heat maps, possible failures, and recovery remedial actions based upon risks outlined, placing the financial institution in the driver’s seat of your business venture. A high percentage of businesses fail to present a strategic risk plan emphasizing the management of financial scenarios but instead submit a business plan with no information about the commercial heat map elements, which can cause a misrepresentation of corporate facts.

Who makes Strategic Risk Plans?The understanding of the risk management science and operating requirements that meet quality control testing are fields dominated by Risk Auditors and Risk Analysts. It is no secret that Risk Management is a science on its own and many professionals make business plans without having proper business economics and corporate internal communications comprehensiveness that result in dismissal of the presented business plan. Financial institutions are inclined to see a Strategic Risk plan rather than a business plan due to the thoroughness of the procedures, components and remedial actions that can secure the recovery of the financed funds’ losses which provides the evident practical perspective.