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?