|Rich Best has spent 28 years in the financial services industry, as an advisor, a managing partner, directors of training and marketing, and now as a consultant to the industry. Rich has written extensively on a broad range of personal finance topics and is published on several top financial sites. Recent books include The American Family Survival Bible and Annuity Facts Revealed: What You MUST Know Before You Invest.|
Getting to Yes with a Solid Loan Proposal
With business confidence at record highs, an increasing number of small businesses are rolling out expansion plans, and many are turning to bank financing for the first time. To keep your expansion plans on track, it’s essential to position your business for the best chance of getting a loan approved. Lenders need to be convinced your business is a low-risk investment with a positive, long-term outlook. That means being able to answer key questions lenders have about your business:
If your need for capital is to receive serious consideration by lenders, it must address these and other critical issues to their complete satisfaction through a well-conceived loan proposal. Here are the key components lenders want to see in your proposal.
Your business plan is key to your loan proposal because it provides evidence of your business’s ability to repay the loan. In addition to stating your business’s mission and objectives, your plan should include an executive summary, marketing analysis, and management profiles.
Your plan should also include financial statements that provide a clear picture of your financial management capabilities. Most lenders want to see a three-year history of your company balance sheets and income statements as well as a statement of cash flows. Your financial statements should be created with the help of a business accounting professional.
Statement of Loan Purpose
Lenders want to know that you have thoroughly considered your capital needs - how you determined the loan amount and how it is to be used. They also want to see how the capital will be deployed to create additional capacity to generate revenues.
When applying for a business loan, lenders look first to the business for credit capacity and collateral. If your business lacks a sufficient credit history or collateral, most lenders will require a personal guarantee for the loan. Your loan proposal should include a loan guarantee document that lists all forms of collateral - business and personal. If you expect the lender to rely all or in part on your individual credit, the loan guarantee document should include a personal financial statement along with three years of personal tax returns.
For the best possible outcome, it would be essential to have your loan proposal package professionally prepared. You should also be prepared to make a formal presentation, so it is well worth the investment to have presentation materials and PowerPoint slides professionally created. Numbers aside, lenders take stock in how well a loan proposal is prepared and presented as a measure of your competence and confidence.
Read Other Small Business Financial Articles