How to Write a Loan Proposal
Approval of your loan request depends on how well you present yourself,
your business, and your financial needs to a lender. Remember, lenders want
to make loans, but they must make loans they know will be repaid. The best
way to improve your chances of obtaining a loan is to prepare a written
proposal. A well written loan proposal contains:
General Information
1. Business name, names of principals, Social Security number for each
principal, and the business address.
2. Purpose of the loan exactly what the loan will be used for and why
it is needed.
3. Amount required the exact amount you need to achieve your purpose.
Business Description
1. History and nature of the business details of what kind of business
it is, its age, number of employees and current business assets.
2. Ownership structure details on your company's legal structure.
Management Profile
1. Develop a short statement on each principal in your business; provide
background, education, experience, skills and accomplishments.
Market Information
1. Clearly define your company's products as well as your markets.
2. Identify your competition and explain how your business competes
in the marketplace.
3. Profile your customers and explain how your business can satisfy
their needs.
Financial Information
1. Financial statements balance sheets and income statements for the
past three years. If you are starting out, provide a projected balance
sheet and income statement.
2. Personal financial statements on yourself and other principal owners
of the business.
3. Collateral you would be willing to pledge as security for the loan.
As you can see, a loan proposal is basically a business plan. A good
business plan can be used as your loan proposals along with the loan application
forms.
How Your Loan Request Will Be Reviewed
When reviewing a loan request, the lender is primarily concerned about
repayment. To help determine this ability, many loan officers will order
a copy of your business credit report from a credit reporting agency.
Therefore, you should work with these agencies to help them present an
accurate picture of your business. Using the credit report and the information
you have provided, the lending officer will consider the following issues:
Have you invested savings or personal equity in your business totaling
at least 25 percent to 50 percent of the loan you are requesting? (Remember,
a lender or investor will not finance 100 percent of your business.)
Do you have a sound record of creditworthiness as indicated by your
credit report, work history and letters of recommendation? This is very
important.
Do you have sufficient experience and training to operate a successful
business?
Have you prepared a loan proposal and business plan that demonstrate
your understanding of and commitment to the success of the business?
Does the business have sufficient cash flow to make the monthly payments?
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