Using AI to Get a Bank Loan? Read This First
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A business plan is all that stands between you and that bank loan.
You have dreams of an expansion. You know exactly what you want to do with those funds. But you don’t have time to sit down and write a complete business plan.
You’re busy running your business.
So why not tap into the big AI craze that everyone has been talking about? Tools like ChatGPT are writing essays, blog posts (though not this one), and emails. Why not save time and frustration by just having AI write your business plan?
I asked a business loan expert to find out, and learned how misusing AI to write your plan can cost you weeks of time, dash your hopes of getting funded, and even put you at legal risk.
“I really like the possibility of using AI,” Christine Buckley told me. “But you can’t just use AI and submit a business plan for funding. ”
Great for getting the ball rolling
Buckley is the director of the Loan Readiness Center at Business Impact NW, a Community Development Financial Institution and business support organization working in Washington, Oregon, Alaska and Idaho. Her team helps entrepreneurs through the process of preparing their business plans and creating financial projections, two things lenders need to see from start-ups to be able to process a loan application.
Buckley’s in favor of using AI — up to a point. Getting past a blank page is one of her clients’ biggest challenges when writing their business plans. And that’s where AI tools like ChatGPT, Anthropic’s Claude, Google’s Gemini, and LivePlan’s AI business plan writing and forecasting assistant really shine.
They’ll take an input like “write a competitive analysis for a dog grooming business” and immediately spit out a seemingly passable overview of the competitive landscape, market trends, and potential competitors (paid versions of these tools perform even better, identifying specific competitors like PetSmart and Petco).
“I had an experience with a non-native English speaker who said it was very helpful just to get the ball rolling and get past that writer’s block,” Buckley said. “So if people can tailor AI a bit more to their situation, I really like it.”
But the problem she’s seen as more clients use it, is the belief by some that they can just hand their business plan over to the technology.
Not only can AI get facts wrong, it can seemingly “invent” facts, confidently citing research reports, data, even legal decisions that don’t actually exist. AI is also incapable of creativity. It’s built on information already on the internet. So if you see an opportunity to do something new with your business and need to explain it to a lender in your business plan, it won’t have information to draw from – and may try to make something up.
“The user has to realize that’s just a starting point,” Buckley said of AI.
Learn More: The 10 AI Prompts You Need to Write a Business Plan
Consistency is crucial
Raising money for your business is one of the most common reasons to write a business plan. Outside of your family and close friends, no one will hand their money over to you without feeling like you’re a smart investment.
That’s where your business plan and financial projections come in. Successful plans tell a compelling story that explains the market opportunity and how the business will achieve sustainable profits.
Ask AI to create an opportunity statement, market analysis, and profit-and-loss statement, and it will give you information to work with. But it won’t understand how important it is for those sections to line up with each other.
“What a loan officer or underwriter is looking for is that consistency. Comparing what they write in the narrative to what they put in, say, their cash flow projections, they have to match,” Buckley said.
When writing a business plan, AI tools – especially free ones – tend to overuse loaded adjectives like “explosive,” “dynamic,” “unrivaled” and other words to describe ideas.
Say you create a financial plan that projects 5% revenue growth over your first two years. If the narrative of your business plan describes “explosive growth potential” for your company, but a lender sees in your financials section that you’re planning for modest growth, that will immediately raise red flags.
“When there’s not that consistency,” Buckley said, “that’s when we all start asking questions: ‘OK, in your projections, you have these numbers. How did you get those numbers?’ It becomes apparent pretty quickly that they used AI.”
Learn More: How to forecast revenues and expenses in LivePlan
Risks add up as review times grow
OK, so what? The bank realized you used AI in your plan. Should you care? After all, loan processors and underwriters exist because entrepreneurs are too busy running their businesses to get everything perfect the first time, right?
Using AI without doing due diligence to check the facts or information it provides can add weeks or even months to the loan application process, Buckley says. The business owner will have to go back and research where they got their information from — which can be impossible if AI is making up facts or using imaginary sources.
“Someone along the line who’s using that business plan to make lending decisions is going to question them about that,” Buckley said.
Using AI without fact checking can also lead to a loan denial for a plan that otherwise may have been approved. And the consequences can be even more severe for a borrower applying for federal funds through an SBA loan, since it’s a crime to provide false information on a government application.
“We’ve denied loans because, when we ask them for information, they can’t provide it,” Buckley said. “We have to deny it or withdraw the application because we can’t make a decision based on the information. We don’t think it’s factual. That’s a huge risk for a lender.”
Know your business inside and out
Buckley stresses that the problem for lenders isn’t entrepreneurs using AI to write their business plans. It’s the risk that they’re submitting business plans for funding, but don’t actually understand their business. If two parts of the plan seem like they’re contradicting each other, or it’s difficult to tell where facts are coming from, a lender may flag the application as risky.
So is it possible to tap into the positive aspects of using AI to write your business plan, while reducing these risks? Absolutely.
“They just have to actually know their business model,” Buckley said.
“They have to know the reasons for doing what they want to do. It’s not going to work if a lender sees that they just want to start a business, and they don’t really know what they’re doing. It’s got to make sense, and it has to demonstrate they’ll know what they’re doing in order to lower the risk for the lender.”
She envisions the future of AI as a starting point for entrepreneurs looking for funding, removing some of the pain of creating a lender-ready plan.
“It can be difficult for business owners or potential business owners to write a business plan, because they’re not writers, and to put together cash flow projections, because that’s not their forte,” she said. “Anything that can help them with the writing process, I’m all for.”
Learn More: The best AI business plan writing tools, ranked
Tips for using AI to write your business plan
As Christine said, AI can be a valuable tool for entrepreneurs who are struggling to get past a blank page, especially for early-stage businesses trying to get started. It can turn jumbled thoughts into complete sentences with the click of a button. Used correctly, it can save time and frustration.
But AI can’t write your business plan for you. Its current strengths lie in its ability to help brainstorm and organize thoughts, summarize research reports and polish writing.
Put simply, AI doesn’t understand your business. It struggles with specific market research tasks like understanding the size of your market and identifying your competitors. And if you ask it to create a financial forecast, you can’t trust the numbers it gives you.
But the opportunities for ideation and writing assistance can be extremely valuable for busy entrepreneurs, which is why we recommend using AI to help you write your business plan.
You just need to remember what makes you valuable in ways technology can’t replicate:
- You know your customers
- You know your market
- You have the creativity to imagine unique solutions to set your business apart from competitors
