Company descriptions: reading yours as a lender, then as an investor

The company description is the section where a reader finds out who, legally and factually, is asking them to lend, invest, supply, or sign. Lenders and investors both read it, and they read it for different reasons, so a description written for one reader can fail with the other.

Its job is identification, not persuasion. A stranger reading only this section should be able to say what the business sells, to whom, under what legal entity, from what premises, and how far along it is.

What to take away

Read it first as a lender

A lender uses this section to answer a narrow set of questions before the credit analysis starts. Each one can be matched to a document, so an answer that cannot be checked counts for little.

Nothing there is about your passion for the craft. Answer the five questions clearly and the section has done its work. The lender then asks what stands behind each answer.

If any answer is undecided, say so and say when it will be decided. A blank is easier to work with than a guess. A reader who finds one invented answer starts checking everything else.

The SBA's plan guidance also has a company description section, and it asks for detailed information about your company. For how a bank reads the whole plan, see the bank loan reader.

Then read it as an investor

An investor reads the same facts for a different reason. They are looking at whether the entity can take investment at all, whether the ownership leaves room for them, and whether the founders have already given away something that will cause a problem later.

If you know one of these applies to you, write it down. It will surface in diligence anyway, and disclosing it yourself is the cheapest version of that conversation. The investor's view of the plan shows what else that reader weighs.

Ownership is the part read twice

Ownership determines who can pledge assets, who signs, who gets diluted, and who can block a decision. Reviewers read it slowly, and both readers above return to it, so state it more fully than any other fact in the section.

State each owner's percentage, what they contributed for it, and whether the contribution was cash, property, sweat, or forgiven debt. Note anything that changes the picture later: options promised, a partner buying in over time, a family member on the paperwork who does not work in the business, a silent investor with a veto.

Also disclose other entities you own or control, especially any that trade with this one. A holding company that owns the building and charges rent to the operating company is normal. Not mentioning it, and having the lender find the related-party rent in your P&L, is not.

If ownership is genuinely in flux, write the current state and the pending change separately. Do not describe an intended structure in the present tense. Keeping the two apart shows the reader which parts are done and which are still hoped for.

Write the trading sentence first

Before the section has a shape, write one sentence: what the business sells, to whom, and how it makes money. No adjectives. It answers the lender's third question, and every other line in the section qualifies it.

That sentence is hard to write because it forces a decision. A bakery that also does wholesale to cafes and rents its kitchen at night has three businesses in one, and the sentence exposes it. Better to expose it now than have a lender find it in the deposit history.

Once the sentence is honest, the rest of the section explains and qualifies it. If you cannot write it, the plan is not ready; the problem is in the business, not the writing. The field-by-field layout is in the company descriptions template.

History, told as events

The history paragraph should be a short list of things that happened with dates: founded, first sale, first employee, moved premises, added the second line, took the equipment loan. Events are checkable. Narrative is not. It also answers the lender's fourth question.

Two things to resist. The first is the origin story that runs longer than the financial section. The second is the smoothing of a bad year. If revenue fell, name the year and the reason in one line. A reviewer who sees a gap and no explanation invents a worse one.

For a business that has not started, there is no history, and inventing one is transparent. Write instead what has been done so far: the entity formed, the license applied for, the letters of intent signed, the equipment quoted, the money already spent. That is real progress and it is more convincing than a founding legend.

Mission statements

A mission statement earns its place when it constrains a decision. "We serve contractors within a ninety minute drive and we do not take residential work" tells a reader what you will turn down, which tells them something about your margins and your scheduling. That is useful.

A mission statement that could be pasted onto any business in any industry is filler that costs credibility in the first hundred words, so cut it. The same applies to values lists and vision paragraphs. Keep them if they change what you do. Otherwise they are filler in the most prominent section of the document.

Four ways this section goes wrong

Each of these four failures is recognizable by the wording a reviewer will catch. All four can be removed by reading the section against the lender's and the investor's questions before filing.

It sells. Superlatives, "leading provider", "passionate team". A reviewer discounts everything after the first unearned claim.

It hides the structure. Multiple entities, related-party rent, an owner who is also the main supplier. All fine, all normal, all damaging when discovered rather than disclosed.

It describes an aspiration in the present tense. "We operate three locations" when two are planned. This is the single fastest way to lose a reader.

It contradicts the rest of the plan. The description says custom fabrication; the operations section describes a stocked catalog; the projections assume repeat orders. Whoever reads all three will not ask which is right, they will stop reading.

Reconcile the section before you file

Read this section against the others and check that each of these matches. Five checks take ten minutes, and they catch most of the contradictions that reviewers find.

This section is short. A page is normal, two is a lot. It sits after the executive summary and before the market work, and it should be readable on its own by someone who skipped that page.

Write it last, or at least revise it last. The description you write before doing the market and financial work is usually the description of the business you imagined, not the one the numbers describe.

Common questions

How much detail about the founding story?

Enough to explain why this business exists and why you are the one running it. Two or three sentences. If it is longer than the ownership paragraph, it is too long.

Should I include the entity's tax election?

State it if it affects how the projections read, which it usually does, because owner compensation is treated differently across structures. The IRS notes that your form of business determines which income tax return form you file. Do not explain the tax consequences yourself. Name the election and let your accountant answer questions on it.

What if I have not registered the business yet?

Say that. Give the intended structure, the state, and the date you expect to file. An unregistered business is a normal thing to be at plan-writing stage; a plan that implies registration that has not happened is not.

Do I need to name my competitors here?

No. Name what you do; competition belongs in the market section. Mentioning competitors in the description tends to turn it into a pitch, which is the failure mode this section is most prone to.