Preparing a Loan Proposal

Start with a solid plan: Requesting a business loan without adequate preparation sends a clear message to the lender: High Risk! Therefore, it pays to be prepared and organized in your approach for financing. This means you know exactly how much money you need, why you need it, and have a clear plan as to how you will pay it back. In other words, you must convince the lender that you are, in fact, a good credit risk.

Know the length of loan term needed:  As explained in the prior article, generally, loans can be classified under two broad categories: short-term and long-term. Short-term loans such as lines of credit are best suited for day to day working capital purposes, accounts receivable financing and so on.

Long-term loans are generally associated with financing real estate, equipment and other major capital expenditures where the objective is to match the loan life to the asset life.

Writing a Loan Proposal: The proper presentation of your company and your loan needs to the lender is important. Obviously, the lender is only motivated to make loans that have a high probability of full repayment.

A well written loan proposal will improve your chances of obtaining the desired level of financing. Unless the lender is already familiar with your business through an existing relationship, you will likely need to provide more comprehensive information. For example, the proposal should contain the following key components:

• The name of the business.
• The type of business entity structure.
• A description of the business.
• The history of the business, when established, how many employees, level of sales, etc.
• The name of all principals and their social security numbers.
• A management profile of the key principals and their role in the business.
• An overview of the background, education, skills and experience of the key individuals.
• A personal financial statement of the owners
• A market overview of your company’s products.
• Identification of your competition with an explanation as to how your business competes in the marketplace or serves a special niche.
• A profile of your typical customer and how your product or service satisfies their needs.
• Financial statements (at least compilation level) consisting of balance sheet, income statement and statements of cash flows for the past three years (if available).
• For a new business startup, projected financial statements might be useful.
• The exact purpose for the loan proceeds.
• The amount of financing required.
• Available collateral that can be pledged as security on the loan.

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