Applying for a small business loan can be exciting and stressful at the same time. To get the best results and increase your confidence level, be prepared when you visit your chosen lender for your business loan interview. Once you have prepared your business plan, start preparing for the loan by writing a loan proposal to present to the lender.
The loan proposal must include crucial information and many details about you and your business or business idea. You must 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 to do if you cannot repay the loan.
The following are key elements to include in your loan proposal.
1. Summary.
This should be included first in your proposal, but will be written last. It must contain clear, concise, accurate and attractive information about your business or business ideas. You 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 your loan proposal summary and point out the features of your business that are different from your competitors.
2. Management profiles.
The management profile section of the loan proposal should explain, more importantly, who you are. Get ready to reveal everything about yourself and your experience. Include a current resume as part of the loan proposal, as well as a summary of your skills, qualifications, and other credentials for yourself, as well as all other homeowners and key members of your management team.
3. Description of the business.
It is not necessary to indicate the same information mentioned in your business plan as in your loan proposal. However, you must present a solid description of the business. Include a brief history of the business in your loan proposal and detail current activities. If it is a new business, explain the details of the business to be developed. Your goal will be to clearly demonstrate that you fully understand your markets, your competitors, and the industry, including any current trends or risks, and how you plan to overcome those potential dilemmas. If the loan is for an existing business, include literature detailing 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 vendors, clients, or other business references. Show through these letters that you provide excellent customer service and that you pay your creditors.
4. Business projections.
Create at least two years of projected income statements and cash flow statements. Your projections must be clearly stated and, more importantly, realistic in nature. In general, you probably don’t need to present “worst case” or “best case” unless the lender asks you to write projections that way. However, you should be prepared to answer questions related to what you will do if some of your projections don’t work out as planned. For example, if you anticipate getting a big new contract or client based on improvements made with the business loan, and that contract never comes to fruition, it could drastically change your loan proposal projections.
5. Financial Statements.
Your loan proposal must include business and personal financial statements. Keep in mind that the lender will take a full look at your financial statement history, calculating all ratios. Be prepared to point out any significant trends you’ve shown in an introductory paragraph.
6. Purpose of the Loan.
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 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. Payment plans.
Payment plans must also be indicated in the financial projections section of the loan proposal, but details of payment plans must be listed separately. Propose the terms you want and be prepared to negotiate with the financial institution. The lender will consider a number of factors when reviewing the overall risk of lending you the money. Understandably, this will affect the payment terms they are willing to offer for your business.
Especially if your credit is good, and even if your credit is not that good, remember that in your loan proposal, you are offering the bank a deal that will make them money. Don’t go asking the lender for an “assignment.” Instead, go into the interview with the goal of your loan proposal in mind; that is, focus on how much money you’ll need and eliminate the idea of going into the meeting wondering how much you’re willing to lend. Never go into a meeting asking for a loan, wondering if you will get a loan or not. If this first lender doesn’t approve your loan proposal, trust another lender to do so.