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How do I write a loan proposal?

How to Write a Loan Proposal

A loan approval request depends on how well the businessperson presents themselves, the business and its financial needs to a lender. Remember, lenders want to make loans but they want to make good loans, loans they know will be repaid. The best way to improve your chances of obtaining a loan is to prepare a written loan proposal. A good loan proposal will contain the following key elements:

  • General Information
  • Provide the business name, address, names of principals and the social security number of each principal.
  • State the purpose of the loan and provide exactly what the loan will be used for and why it is needed.
  • Provide the amount required in the exact amount needed to achieve your purpose.
  • Business Description
  • Give the history and nature of the business with details of the business’s age, number of employees and current business assets.
  • Provide details on the ownership structure (the company’s legal structure).
  • Management Profile
  • Develop a management profile detailing the responsibility of each principal staff member.
  • Include the individual’s background, education, experience, skills and accomplishments.
  • Market Information
  • Provide a clear definition of the products and markets.
  • Identify competition and explain how the business competes in the marketplace.
  • Profile the company’s customers and explain how the business can satisfy their needs.
  • Financial Information
  • Provide financial statements including balance sheets and income statements for the past three years. If just starting out, provide a projected balance sheet and income statement.
  • Prepare a personal financial statement on yourself and other principal owners of the business.
  • List all collateral that could be pledged to the bank as security for the loan.

How a Loan Request Is Reviewed

A loan officer’s primary concern when reviewing a loan request is whether or not the loan will be repaid. To help answer this question, many loan officers will order a copy of your business credit report. Using the credit report and the information you have provided, the lending officer will consider the following:

  • Have the principal(s) invested savings or personal equity in the business totaling at least 25 percent to 50 percent of the loan requested? Remember a lender or investor will not finance 100 percent of the business.
  • Does the principal(s) have a sound record of credit worthiness as indicated by your credit report, work history and letters of recommendations? This is very important.
  • Does the principal(s) have sufficient experience and training to operate a successful business?
  • Has the principal(s) prepared a loan proposal and business plan that’s demonstrates an understanding of the business and commitment to the success of the business?
  • Does the business have sufficient “cash flow” to make the monthly payments on the loan request?

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