How Do I Put Together A Business Loan Proposal?

The Necessary Elements For Your Loan Proposal

When applying for a business loan, you will need to put together a complete packet of information for the lender that will clearly set forth the exact loan proposal that you require.

Your proposal should tell the lender the purpose of the needed financing, the justification for the funds, the structure of the proposed loan and your estimated use of the loan proceeds.

A well-prepared borrower will provide the lender with justification of the funds explaining how a business loan is the best source of the fund being requested. The lender may be aware of alternative sources and will often test if the borrower has knowledge of them as well.

Therefore, you should be prepared to explain why a loan is your most feasible source of financing due to costs, better terms, higher leverage, or any other factors that convinced you to choose to apply for the loan.

Next, it is best for the borrower to offer input of how the loan should be structured at the time the loan request is submitted. This will settle the conditions and terms that define the transaction between you and the lender. You will have the most opportunity to influence the structure at the beginning of negotiation than any other time.

Loan structure components usually include:

Loan amount: specify exactly how much money you need and why and be ready to defend it with support data.

Loan term: define the period over which it would be advantageous for the business to repay the loan. However, the lender will be setting the terms.

Interest rate: interest rate is a function of the lender’s risk. It does no harm to ask, but be realistic about how much risk your deal presents to the lender.

Before initiating the loan structure, be sure you know how to calculate the loan payment using the amount, interest rate and repayment term that you are requesting. It’s essential to determine if the payment is within your company’s budget. There’s no sense in agreeing to terms that you will not be able to fulfill.

If the borrower does not specifically declare exactly where, when and how much money is needed, the lender will decide based on limited information, which can slow down the approval. You must have a specific schedule that defines precisely how the funds will be used.

Tips And Warnings

Even if a proposal is not requested in the loan application package for a business loan, take the initiative and prepare one anyway. This step will show the lender that you are professional and savvy about the loan process.
Be realistic and honest. Don’t inflate your projected profits, and come clean about any serious difficulties your company has experienced in the past. The facts in your proposal are easy to check, so any misstatements will most likely come back to haunt you.

Make sure your information is complete, but don’t write a book. Lenders are extremely busy and unnecessary fluff might work against you.

Let your attorney and accountant have a look at the proposal before you submit it.