Developing your loan proposal

Loans are important to a business for many reasons, to expand, for new products/services, to repay debts, etc. When looking for a business loan from a bank of financial institutions you need to submit a loan proposal.
Your loan proposal must answer the following questions:

• Who are you?
• How much do you need?
• How are you going to pay it back?
• What happens if you can't pay it back?

Elements of your loan proposal

Generally, the loan proposal is comprised of the following elements:

• Summary: The loan proposal begins with the summary, however this is often written last.
  This should be clear, concise, accurate and inviting. You want to summarise how the proposed loan will be used, how it will be repaid and how it will benefit your business. Remember, that you are competing with many others, so you'll also want to point out some of the distinguishing features of your business.
• Management Profiles:
  The key issue here is who are you? You prepared to be closely scrutinized. You will need resumes as well as a summary of experience, qualifications and credentials for all owners and key members of your management team.
• Business Description:
  You don't need to repeat all of the information contained in your business plan, but you do need to present a solid description of your business. Include a brief overview of the history of your business, plus a summary of current activities. Make sure you clearly demonstrate that you understand your markets and industry (current trends and risks). Include literature showing your products or services. It is also helpful to include letters from suppliers, customers and other business references.
• Projections:
  You will require projected income statements and cash flow statements for up to two to threw years. Your assumptions should be clearly stated and realistic. Generally, you don't need to show "best case" and "worst case" unless the banker asks you to do so. But do be prepared to answer questions (in quantifiable terms) about what happens if some of your assumptions don't come true. For example, if you anticipate obtaining a major new contract or customer as a result of newly expanded capacity, can you estimate the impact on your income statement if that customer decides to take her business elsewhere?
• Financial Statements:
  The loan package must include both business and personal financial statements. Make sure that you fully understand the "story" that your financial statements tell. Have you analysed your historical ratios? You can be assured that your banker will fully analyse your historical financial statements and calculate all the ratios. So, prepare in advance and point out any significant trends in an introductory paragraph.
• Purpose of the loan:
  Present a detailed statement of how you will use the loan proceeds. Make sure that you have a good understanding of the type of loan that you need ?. Don't forget to include the proceeds of the loan in your cash flow projections (and the interest in your projected income statement).
• Amount:
  Remember, that you are offering the bank a deal that will make them money -- you are not asking for an "allowance". The attitude you should take is to ask, "how much money do you need, and how much will they lend?" and not, "will they lend it?"
• Repayment Plans:
  How are you going to repay the money. You will propose the terms that you want, but ultimately this will be a point that will be negotiated with the bank. The bank will consider a number of factors as they assess the overall risk of the loan and this will impact the repayment terms they are willing to give you.