Some lenders might require a business loan proposal to be included in your application for a business loan. A business loan proposal shouldn’t be confused with a business plan or marketing strategy.
While some similar data is included in each documents, a business loan proposal is extra streamlined to focus attention on the loan quantity you need and your compensation plan.
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How is a business loan proposal completely different from a business plan?
Whilst you could also be requested to include a marketing strategy along with your loan application, its use isn’t limited to that.
Consider your business plan as a broad, long-term document that may guide you through every stage of your small business, from startup to growth to sale or closure.
It consists of information on how your business is structured, the way it operates and your plans for the long run.
What makes a great business loan proposal?
Like all document, it ought to be organized and well-written. The loan proposal itself could be relatively short, just a few pages, however additional documents can be added as attachments.
The financial information you present in your loan proposal ought to demonstrate that your business is financially stable.
Your loan proposal may very well be laid out in a variety of ways. Before you start, ask your lender if it has a preferred format.
If it doesn’t, you should use short sections to supply information and highlight specific details. Documents related to every part could be included at the end.
This method will provide a concise summary of your proposal upfront adopted by attachments that may back up your statements.
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Business loan proposal structure
The following are some typical sections of a loan proposal. In case your lender doesn’t require a selected format, then you’ll definitely have some flexibility in heading titles and the order of sections.
After finishing an executive summary and the business overview, you may rearrange the sections if applicable for your business.
1- The Executive summary or cover letter
Use the executive summary to briefly describe your self and your background. Additionally, give an outline of your business and the way you plan to make use of the loan funds.
If you happen to need more than a paragraph to adequately present this information, then you’ll be able to convert this section to a separate cover letter that contains just a few paragraphs.
However, do not forget that this is a summary and you will provide more personal details and business information in different sections of the loan proposal.
2- A Business overview
Present the related history of your business, its legal structure, licenses required and a quick summary of its present activity.
You may select to cover your expertise, {qualifications} and skills on this section.
Or, if your business has a number of owners or staff members who’re major contributors to your operation, a separate section could be created to focus on their expertise and skills.
Add important details about your customers, the present market, industry trends and on-line advertising and marketing channels, if you happen to use them.
3- Owner investment
The equity you might have in your business can reveal your dedication to its success. Talk about the monetary investment you might have in your business.
This includes money amounts you’ve invested and any retained earnings you’ve held on to.
4- Loan request
Be clear concerning the sum of money you are requesting and what it is going to be used for. Provide details about what can be bought.
Additionally, explain how you decided the loan amount you wanted. Include quotes and estimates you used in your calculations.
5- A Loan repayment plan
Using the loan terms you’ve been supplied or quoted and the related repayment schedule, clarify how you’ll be able to make well timed loan payments primarily based on your projected sales and money flow.
If fluctuating sales and/or money flow are regular in your business, clarify how money reserves or an alternative choice can be used to make funds throughout lean times.
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6- Financial statements
You may present an overview of each business and private financial statements on this part after which include the actual statements as attachments.
Lenders will need to see business financial statements for the present period and three prior years.
This list consists of income statements, balance sheets and net worth reconciliations for your business. Projected income statements and steadiness sheets are OK in the event you’re a startup enterprise.
Personal financial statements might be needed for any owner who has 20% or extra equity in your business.
These statements, which include private assets, liabilities and net worth, ought to be present. Verify along with your lender to see if tax returns might also be needed and the number of years.
7- Income and cash-flow projections
Clarify the details of your projected revenue and cash-flow statements on this section. You might also need to discuss what changes you’ll make to your business if you don’t attain your projections.
At a minimum provide one year of projections. A number of years of projections can be needed if a positive cash flow can’t be achieved within the first year.
8- Pledged collateral
This part can be used to explain what recourse the lender can have in case you can’t repay the loan, or the collateral you are pledging with the loan.
Summarize the assets you are willing to make use of as collateral, which could be sold for cash to cover the mortgage debt. Present a detailed listing of those assets as an attachment.
9- Existing liabilities
Some lenders might request data on different debts you might have.
You may summarize the data here and include an attachment with particulars about whom you owe, their addresses, amounts owed and fee schedules.
10- Attachments
Lastly, include any documents talked about in the sections of your loan proposal as attachments.
