• Business models show lenders what to expect from business operations.signing of model release image by Igor Zhorov from Fotolia.com
  
  A business model is essentially a business plan described through very clear documentation by the entrepreneur who is creating the business. Business models are very important, not only for planning the details of the business, but also for finding financing: Banks and other lenders require a thorough business model and make many of their lending decisions based on its quality. There are several basic concepts included in every business model.
  
  

Value Proposition

• The value proposition shows what value the business offers its customers. The business must offer a value that the customer cannot get elsewhere--a unique service, a unique product or a lower price or better form of customer service than is available from other businesses. Without a strong value proposition, the business cannot succeed against competitors. Value propositions include amission statement and market analysis.
  
  

Target Market

• The target market explains what market the business is aimed at. Businesses cannot try to appeal to everyone--products and services are only designed for a certain part of the market. Businesses need to show they understand this market and are capable of marketing efforts to target the consumers there. Without a customer base, the business cannot make a profit.
  
  

Business Process or Chain

• The business process section of the model, sometimes referred to as a chain, explains in detail the systems of the business, often with charts and diagrams. These show all inputs in the business and every step that occurs until these inputs are changed to the finished product or service and sold to the customer. This typically includes specific business positions and the responsibilities of each position.
  
  

Competitive Advantage

• The competitive advantage delves more deeply into the business's relation to competitors. Small businesses cannot hope to compete against the prices of large companies, but they can have competitive advantage in terms of great service, local produce (which those interested in supporting their community and choosing organic food will prefer), or unique discounts. This section shows how the business can establish itself in a competitive market and attract customers despite many alternatives.
  
  

Cost Structure

• The cost structure of the business shows what expenses the business will have, both in acquiring assets and especially in day-to-day operations. These include utilities, wages, fees, supply costs and shipping costs. This is a vital component of the model, since it allows the business to see how much profit it will make.
  
  

Revenue Streams

• Revenue streams are all the ways that the business will make revenue. Most revenue comes from sales or fees associated with services, but businesses should also show the money they will be getting from interest payments and any related sources. This section is very important to lenders, who want to be sure they will be paid back.