Applying for a loan to a small company can be exciting and yet stressful at the same time. For best results and to increase your confidence level, be prepared when you visit the lender you have selected for your business loan interview. Once you have prepared your business plan, start preparing for the loan by writing a loan proposal to submit to the lender.
The loan proposal should contain some important information and many details about both yourself and your business or business idea. It needs to be told 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 to do even if you cannot repay the loan.
The following are key elements to include in your loan proposal.
This should appear first in your proposal but will be written last. It should contain clear, concise, accurate, welcoming 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.
Most importantly, the management profile section of the loan proposal should explain who you are. Be prepared to reveal everything about yourself and your experience. Get an up-to-date resume as part of the loan proposal, as well as an overview of your skills, qualifications and other credentials for yourself, as well as for all other owners and key members of your management team.
3. Company description.
It is not necessary to provide the same information mentioned in your business plan as in your loan proposal. However, you need to present a solid description of the company. Include a brief history of the company in your loan proposal, detailing the current activities. If it’s a new business, explain the details of the business that will be developed. Your goal will 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 these potential dilemmas. If the loan is for an existing business, include literature that includes details of your products or services, such as current sales sheets, brochures or catalogs. Include attachments to your loan proposal for this section, e.g. Letters from suppliers, customers or other business references. Show 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 expected income statements and cash flow statements. Your projections must be clearly stated and most importantly realistic. Generally, you probably do not need to present the “worst case” or “best case” scenario unless the lender asks you to write the projections that way. However, you must be prepared to answer questions about what you want to do if some of your projections do not work as planned. For example, if you expect to get a large, new contract or customer based on improvements made with the corporate loan and the contract never goes through, it could drastically change your loan projections.
Your loan proposal must include both business and personal accounts. Be aware that the lender will analyze the history of your accounts completely by calculating all matters. Be prepared to point out the significant trends you have shown in an introductory section.
6. Loan Purposes.
One of the most important parts of your loan proposal is a detailed description of how you will use the loan revenue. Have a good understanding of the type of loan you need and remember to include the proceeds of the loan in your cash flow projections as well as the interest rates in your expected income statement.
7. Repayment plans.
Repayment plans must also be included in your financial forecast section of the loan proposal, but details of repayment plans must be specified separately. Suggest 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 loaning you the money. Understandably, this will affect 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 offer the bank a deal that will make them money. Do not go in and ask the lender for an “allowance”. Instead, enter the interview with your goal of loan proposals in mind; namely, focusing on how much money you need and removing the idea of going into the meeting and wondering how much they are willing to lend. Never go to a meeting asking for a loan and wonder if they will loan you or not. If this first lender does not approve your loan proposal, you must trust that someone else will.