Bank Loan Business Plan: What Federal Standards Ask the Bank to Document
The federal safety and soundness standard on loan documentation and credit underwriting, 12 CFR 30 Appendix A, does not mention a business plan and sets no debt service coverage ratio (DSCR). It says loan documentation practices should "Identify the purpose of a loan and the source of repayment, and assess the ability of the borrower to repay the indebtedness in a timely manner". So do 12 CFR 364 Appendix A (FDIC) and 12 CFR 208 Appendix D-1 (Federal Reserve). The OCC, FDIC and Federal Reserve manuals we read set no DSCR floor either; for a term loan, the Federal Reserve's manual calls cash flow the primary source of repayment. We found 1.25 as a coverage floor in one place: SBA SOP 50 10 8.1, for certain 7(a) changes of ownership.
This is general information, not lending, legal or accounting advice, and we are not a bank, a lender or a law firm. The standards and manuals cited here are written for banks and their examiners, and each bank sets its own credit policy. Real estate secured loans also come under separate federal lending standards, covered here only in outline. Credit unions, non-bank lenders and specialty lending (asset based, reserve-based, agricultural) are not covered. Confirm what your bank wants, including any coverage ratio, with the lender underwriting your loan.
Do banks require a business plan for a business loan?
For a conventional loan, not under any federal standard we read. Whether to ask for one is left to each bank's credit policy. On our reading, a plan's job is to supply what the bank's file should show.
The words business plan do not appear in 12 CFR 30 Appendix A or in section 2080.1, on commercial and industrial loans, of the Federal Reserve's Commercial Bank Examination Manual. The OCC's 2026 lending booklet uses the words business plan about a borrower once, in procedures for purchased loans, as an optional example: "Nonfinancial information for commercial loans may include the borrower's business plans and objectives". The FDIC's examination manual says a bank's credit files should contain "Other essential information, such as the purpose of the borrowing and intended plan or sources of repayment".
What do banks look for in a business plan for a loan?
No federal banking standard we read says what a bank looks for in a plan. The standards say what its practices should cover: the loan's purpose, the source of repayment, your ability to repay, your financial condition, any guarantor, any collateral and your character.
12 U.S.C. 1831p-1 says "Each appropriate Federal banking agency shall, for all insured depository institutions, prescribe" standards on, among other things, loan documentation and credit underwriting. The agencies did so in the Interagency Guidelines Establishing Standards for Safety and Soundness: 12 CFR 30 Appendix A for the OCC, 12 CFR 364 Appendix A for the FDIC and 12 CFR 208 Appendix D-1 for the Federal Reserve. Parts II.C and II.D carry the same words in all three.
Part II.C, on loan documentation, includes the sentence quoted at the top of this page. Part II.D asks for prudent credit underwriting practices that:
Provide for consideration, prior to credit commitment, of the borrower's overall financial condition and resources, the financial responsibility of any guarantor, the nature and value of any underlying collateral, and the borrower's character and willingness to repay as agreed
| Guideline | What the bank's practices should cover | What supplies it in your plan (our mapping) |
|---|---|---|
| II.C.2 | Purpose of the loan | Use of funds, line by line |
| II.C.2 | Source of repayment | Cash flow build against principal and interest |
| II.C.2 | Ability to repay in a timely manner | Debt schedule and coverage by year |
| II.D.3 | Overall financial condition and resources | Historical statements and balance sheet |
| II.D.3 | Financial responsibility of any guarantor | Each guarantor's financial statement |
| II.D.3 | Nature and value of any collateral | Collateral schedule at a liquidation value |
| II.D.3 | Character and willingness to repay | Record on prior obligations, management section |
The OCC's 2026 lending booklet tells examiners that "sound underwriting and related loan documentation practices should be consistent with the safety and soundness standards in 12 CFR 30, appendix A", and that "The format and depth of an appropriate underwriting analysis vary based on factors such as loan type and size". None of the bank standards or manuals we read fixes a page count or a list of sections for a plan.
What is the primary source of repayment for a term loan?
Cash flow from the business. Collateral and guarantees are secondary, and the OCC asks what collateral will be worth when it has to be liquidated.
The Federal Reserve's manual says that while cash flow of the business is "the primary source of repayment for a term loan, a secondary source would be the sale of the underlying collateral". The OCC's Rating Credit Risk booklet refers to "Other secondary repayment sources, such as collateral and guarantees".
On value, the OCC says "Collateral valuations should include analysis of the value under duress". Among loan types that may reflect poor risk selection, the FDIC's manual lists:
Loans which appear to be adequately protected by collateral, but which involve a borrower with limited or unassessed repayment ability
Is there a minimum debt service coverage ratio for a bank loan?
None of the bank standards or examination materials we read sets a minimum debt service coverage ratio (DSCR). The one place we found 1.25 as a floor is an SBA program rule.
The FDIC's manual says its discussion of types of credit "will not include or allude to acceptable ratios, levels, comparisons or terms" and that "These matters should, however, be addressed in each institution's lending policy". The OCC's Rating Credit Risk booklet, in its list of structural weaknesses, describes adequate coverage without a number:
The initial underwriting of loans that are intended to be repaid from operating cash flow should provide for an acceptable margin to repay both principal and interest in a reasonable time based on historical performance
On loan covenants, the OCC's 2026 booklet says "Covenants may also be financial indicators such as a minimum DSCR".
SOP 50 10 8.1 requires the ratio of a Standard 7(a) applicant (loans greater than $350,000) to be "equal to or greater than 1.15 on a historical and/or projected cash flow basis and 1:1 on a global basis", and for 7(a) changes of ownership its Appendix 15 sets separate floors, including "Initial Acquisition: 1.25:1". Our SBA debt service coverage requirements guide sets them out by program; for a loan with an SBA guaranty, see also our SBA loan business plan service and our article on whether the SBA requires a business plan.
Real estate secured loans also come under the Interagency Guidelines for Real Estate Lending Policies. For development and construction projects and completed commercial properties, they say a bank's policy should establish "Minimum standards for net worth, cash flow, and debt service coverage of the borrower or underlying property", with no number. They do set supervisory loan-to-value limits, from 65 percent for raw land to 85 percent for improved property, with exceptions allowed.
We have not surveyed the floors banks write into their credit policies, so this page gives none. Ask your lender for its number and how it defines cash flow.
A worked example. The Federal Reserve's manual sets out a traditional cash flow method, which it calls less reliable than the accrual conversion method it prefers. To pre-tax net income it adds interest expense and "all noncash depreciation and principal amortization on outstanding debt", and it describes the subtotal, cash flow before debt service, as EBITDA. Our table follows the EBITDA label, which is our reading. Coverage is that subtotal divided by debt service. The figures are illustrative and imply no floor: annual principal and interest of $60,000, of which $30,000 is interest.
| Line (our layout of the Federal Reserve traditional method) | Base case | Break-even case |
|---|---|---|
| Net income before taxes | $40,000 | $10,000 |
| Add interest expense | $30,000 | $30,000 |
| Add depreciation and amortization | $20,000 | $20,000 |
| Cash flow before debt service | $90,000 | $60,000 |
| Debt service (principal and interest) | $60,000 | $60,000 |
| Coverage ratio | 1.50 | 1.00 |
| Cash after debt service | $30,000 | $0 |
| Less capital expenditures | $25,000 | $25,000 |
| Excess (deficit) cash flow | $5,000 | ($25,000) |
Base case: $40,000 + $30,000 + $20,000 = $90,000, and $90,000 / $60,000 = 1.50. A $30,000 fall in pre-tax income leaves $60,000 / $60,000 = 1.00, and after $25,000 of capital spending the business is $25,000 short.
How do bank examiners test financial projections?
Against history and under more than one scenario.
The OCC's Rating Credit Risk booklet tells examiners to compare projections with historical performance and says "Projections should be analyzed under multiple scenarios", naming four: downside, break-even, best case and most likely case. For a loan meant to fund the revenue that repays it, it says:
If repayment is predicated on new revenues that are expected to be enabled by the loan, then anticipated future cash flows should be reasonable and well documented
The FDIC's potential problem indicators include the "Absence of cash flow statements or projections", particularly for "newly established term borrowers", and its examples of poor risk selection include "Loans to finance new and untried business ventures which are inadequately capitalized".
What does a bank loan business plan have to show?
On our reading of the sources above, the plan has these jobs.
- Purpose and use of funds, line by line. The OCC says "The loan purpose should clearly reflect the actual use of the proceeds".
- A repayment program with a source and a timing, shown as a cash flow build with coverage by year on the loan's full principal and interest. The FDIC says "Loans granted without a well-defined repayment program violate a fundamental principle of sound lending".
- Full financial statements. The OCC names "The balance sheet, income statement, sources and uses of funds statement, and financial projections".
- Projections tied to history, with written assumptions, a downside case and, for a start-up, the owners' equity.
- Secondary sources. A collateral schedule at a liquidation value and each guarantor's financial statement, supplied by you and your guarantors.
- Management. The OCC associates probability of default with, among other things, "the inability to successfully implement a business plan".
What does a bank loan business plan cost?
Our business plans are published at $1,000 Essential, $1,800 Standard and $2,800 Premium, fixed. Financial models are $750, $1,250 or $1,950; scenario analysis and debt service coverage start at Standard. Every price is on our pricing page. We never charge a percentage of anything you borrow, invest or raise.
Business Plan Firm is the US practice of Avvale, a London consultancy. We have written 1,000+ plans for 500+ founders across 30+ countries, and our clients have raised $500M+.
How we verified this
Every quotation was checked against raw source text. All sources were retrieved on 10 October 2026; those first retrieved on 6 October 2026 were unchanged.
- 12 U.S.C. 1831p-1 at the Legal Information Institute, for the order to prescribe standards.
- Interagency Guidelines Establishing Standards for Safety and Soundness, parts II.C and II.D, current text at the Legal Information Institute: 12 CFR 30 Appendix A, 12 CFR 364 Appendix A and 12 CFR 208 Appendix D-1. A Federal Register search on 10 October 2026 found no rule since January 2025 amending these appendices; the OCC and FDIC final rule on unsafe or unsound practices (91 FR 56004, effective 2 November 2026) does not.
- Interagency Guidelines for Real Estate Lending Policies: 12 CFR 365 Appendix A (FDIC), 12 CFR 34 subpart D Appendix A (OCC) and 12 CFR 208 Appendix C (Federal Reserve), for the coverage sentence and loan-to-value limits, the same in all three.
- OCC Comptroller's Handbook, Rating Credit Risk (April 2001), for repayment sources, projections, collateral and the Appendix F structural weakness list.
- OCC Comptroller's Handbook, Lending and Loan Portfolio Risk Management, Version 1.0, 2026, for the underwriting standard, covenants and purchased loan procedures.
- FDIC Risk Management Manual of Examination Policies, section 3.2, Loans (3-2026), for lending policies, credit files, poor risk selection, repayment programs and potential problem indicators.
- Federal Reserve Commercial Bank Examination Manual, section 2080.1 (effective date November 2020), for the term loan sentence and the traditional cash flow method.
- SBA SOP 50 10 8.1, effective 1 October 2026, Section B, Chapter 1 and Appendix 15, the file on the SBA SOP 50 10 document page on 10 October 2026, for the SBA coverage floors.
Left out because we did not survey lenders: any bank's own coverage ratio, loan-to-value, advance rate, credit score, page count or years of tax returns.
Frequently asked questions
Do banks require a business plan for a business loan?
No federal standard we read requires a business plan for a conventional bank loan; whether to ask for one is left to each bank's credit policy. 12 CFR 30 Appendix A and its FDIC and Federal Reserve copies do not mention one. They say loan documentation practices should identify a loan's purpose and source of repayment and assess ability to repay.
What do banks look for in a business plan for a loan?
On our reading, a business plan for a bank loan should supply what 12 CFR 30 Appendix A, parts II.C and II.D, asks the bank to document and consider: the loan's purpose, the source of repayment, the ability to repay, the borrower's financial condition, any guarantor, any collateral and the borrower's character.
Is there a minimum debt service coverage ratio for a bank loan?
None of the bank standards or examination materials we read sets a minimum debt service coverage ratio for a bank loan. The OCC's Rating Credit Risk booklet asks for an acceptable margin, with no number. We found 1.25 as a coverage floor in SBA SOP 50 10 8.1, Appendix 15, for an initial acquisition under a 7(a) change of ownership.
Is collateral enough to get a business loan?
For a term loan, the Federal Reserve's manual calls cash flow of the business the primary source of repayment and the sale of collateral a secondary source. The FDIC's manual lists loans that appear adequately protected by collateral, but involve a borrower with limited or unassessed repayment ability, among loan types that may reflect poor risk selection.
Does a start-up need financial projections for a bank loan?
For a start-up seeking a bank loan, the FDIC's examination manual lists the absence of cash flow statements or projections, particularly for newly established term borrowers, among its potential problem indicators. Its examples of loan types that may reflect poor risk selection include loans to finance new and untried business ventures which are inadequately capitalized.
This page summarizes the sources named above as retrieved from 6 to 10 October 2026. It is general information, not legal, lending, tax or accounting advice. Each bank applies its own credit policy and supervisory guidance changes. Confirm current requirements with the lender that will underwrite your loan.