Creating a Loan Proposal
Loan Proposal
Applying for a small business
loan can be exciting and yet stressful at the same time. For the best results
and to heighten your level of confidence, be prepared when you visit the
lender you've chosen for your business loan interview. After you have your
business plan prepared, start preparing for the loan by writing a loan
proposal to present to the lender.
The loan proposal should
state some crucial information, and many details, about both yourself and
your business or business idea. It should state who you are, how much money
you need and where the money will be spent, how you intend to repay the
loan, and what you plan on doing in the even that you cannot repay the
loan.
The following are key elements
to include in your loan proposal.
1. Summary
This should be listed first
in your proposal, but will be written last. It should contain clear, concise,
accurate, inviting information about your business or your business ideas.
It should summarize how the proposed loan will be used, how it will be
repaid, and how it will benefit your business. Remember your competition
in the summary of your loan proposal, and point out features of your business
that are different from your competitors.
2. Management Profiles
The management profile section
of the loan proposal should explain, most importantly, who you are. Be
prepared to reveal everything about yourself and your experience. Have
a current resumŽ included as part of the loan proposal, as well as a summary
of
your skills, qualifications, and other credentials for yourself, as well
as for all other owners and key members of your management team.
3. Business Description
It's not necessary to state
the same information mentioned in your business plan as in your loan proposal.
However, you do need to present a solid description of the business. Include
a brief history of the business in your loan proposal, and detail the current
activities. If it's a new business, explain the details of the business
that will be developed. Your goal will to be to clearly demonstrate that
you fully understand your markets, your competitors, and the industry,
including current trends or risks and how you plan to overcome those potential
dilemmas. If the loan is for an existing business, include literature that
details your products or services, such as current sales sheets, brochures,
or catalogs. Include attachments to your loan proposal for this section,
such as letters from suppliers, customers, or other business references.
Demonstrate through these letters that you provide excellent customer service,
and that you pay back your creditors.
4. Business Projections
Create at least two years'
worth of projected income statements and cash flow statements. Your projections
should be clearly stated and, most importantly, realistic in nature. Generally,
you probably won't need to present the "worst case" or "best case" scenario
unless the lender asks for you to write the projections that way. You should,
however, be prepared to answer questions pertaining to what you'll do if
some of your projections don't work out as planned. For example, if you
anticipate obtaining a large, new contract or customer based on improvements
made with the business loan, and that contract never goes through, it could
change your loan proposal projections drastically.
5. Financial Statements
Your loan proposal should
include both business and personal financial statements. Be aware that
the lender will fully analyze the history of your financial statements,
calculating all ratios. Be prepared to point out any significant trends
you've shown in an introductory paragraph.
6. Loan Purpose
One of the most important
parts of your loan proposal is a detailed description of how you will use
the loan proceeds. Have a good understanding of the type of loan that you
need, and remember to include the proceeds of the loan in your cash flow
projections, as well as the interest in your projected income statement.
7. Repayment Plans
Repayment plans should also
be stated in your financial projections section of the loan proposal, but
details of repayment plans should be detailed separately. Propose the terms
you want, and prepare for negotiations with the financial institution.
The lender will consider a number of factors as they review the overall
risk of lending you the money. Understandably, this will impact the repayment
terms that they are willing to offer for your business.
Especially if your credit
is good, and even if your credit is not so good, remember that in your
loan proposal, you are offering the bank a deal that will make them money.
Don't go in asking the lender for an "allowance." Instead, enter the interview
with your loan proposal objective in mind; namely, focusing on how much
money you'll need, and remove the idea of going into the meeting wondering
how much they're willing to lend. Never go into a meeting asking for a
loan, wondering whether or not they'll lend to you. If this first lender
won't approve your loan proposal, have confidence that a different will.
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