Applying for a small business loan can be exciting and stressful at the same time. For the best results and to increase your confidence level, be prepared when you visit the lender of your choice for your business loan interview. Once you’ve prepared your business plan, begin preparing for the loan by writing a loan proposal to present to the lender.
The loan proposal should include crucial information and lots of details about you and your business or business idea. You should indicate who you are, how much money you need and where the money will be spent, how you plan to repay the loan, and what you plan to do in the event that you cannot repay the loan.
The following are key items to include in your loan proposal.
This should appear first in your proposal, but will be written last. It should contain clear, concise, accurate and attractive information about your business or 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 your loan proposal summary and point out the characteristics of your business that are different from your competitors.
2. Management profiles.
The administrative profile section of the loan proposal should explain, most importantly, who you are. Be prepared 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 for all other owners and key members of your management team.
3. Commercial description.
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 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 those potential dilemmas. If the loan is for an existing business, include documentation 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. Commercial projections.
Create at least two years of projected income statements and cash flow statements. Your projections must be clearly stated and, more importantly, they must be realistic in nature. Generally, 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 do not go as planned. For example, if you anticipate landing a large new contract or client based on business loan improvements, and that contract never materializes, you could drastically change your loan proposal projections.
5. Financial statements.
Your loan proposal should include business and personal financial statements. Keep in mind that the lender will thoroughly analyze your financial statement history, calculating all ratios. Be prepared to point out any significant trends you may have 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 loan proceeds in your cash flow projections, as well as interest in your projected income statement.
7. Repayment plans.
Payment plans must also be listed in the financial projections section of the loan proposal, but details of payment plans must be detailed separately. Propose the terms you want, and prepare for negotiations with the financial institution. The lender will consider a number of factors while reviewing the overall risk of lending you the money. Understandably, this affects 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 money-making deal. Don’t go asking the lender for an “allowance.” Instead, enter the interview with the goal of your loan proposal in mind; that is, focus on how much money you will need and eliminate the idea of going to the meeting wondering how much they are willing to loan. Never go to a meeting asking for a loan, wondering if they will lend it to you or not. If this first lender doesn’t approve your loan proposal, trust that someone else will.