Developing a Business Loan Proposal:
Suggested Contents
A loan proposal is an abbreviated form of a business plan and can be used by existing business owners in place of a business plan in order to seek financing. In some instances, a loan proposal can be used by a start-up business which is uncomplicated in nature and where the amount of financing needed is low. (Most start-up businesses and existing businesses planning significant changes or a major expansion may need a full business plan.) A loan proposal can also be used to seek financing for a business purchase.
The purpose of a loan proposal is to communicate the important aspects of your loan project to potential lenders. This information contained in your proposal is standard information that will be required by most lenders. In order for a lender to make a decision on your loan deal, you must provide him/her with information, in writing, about the business and its future plans.
A quality loan proposal contains written narrative, financial information, and supporting documentation. When compiling your loan proposal, you should strive to provide a clear picture of the business and its financing needs. Developing a quality loan proposal to present to the potential lender will enable you to make a good impression and increase your chances of obtaining financing.
The following is an outline of the minimum information that should be contained in your loan proposal. Keep in mind that you may need to include additional information in your proposal if there are other critical aspects of your business and/or your project. Once you submit your proposal to a lender, he or she may request additional information or supporting documentation.
Loan Information
Indicate the requested loan amount and how you will use the loan proceeds.
Identify the requested terms of the loan (loan length, interest rate, etc.)
List the collateral available to secure the loan along with current market values.
Specify the owner's equity contribution. (How much cash are you contributing to the project?)
Description of Business
Provide a description of the business history and current status of the business along with a detailed explanation of all products/services.
Include an explanation of the future plans for the business and how the loan will benefit the business. Discuss any planned changes to business operations.
Identify the specific location of the business. Include a written explanation of required improvements to the facility as well as costs of those improvements (if applicable).
Description of the Market and Marketing Strategy
Discuss the market for your business. Who is your target customer base? You must demonstrate that there is sufficient demand for your products/services.
Identify key competitors and suppliers. How do these players affect your business?
Discuss your specific marketing strategy/plan. What are the specific costs related to this marketing plan?
Explanation of Management Information and Personnel Requirements
Discuss your personnel plan and key staff, including a description of their roles in the business.
Discuss the relevant experience of management and how that experience will contribute to the success of the business.
List other key advisors (ex. attorney, accountant, insurance agent).
Business Financial Information
Provide 3 years of tax returns.
Include a current income statement and balance sheet for the business.
Demonstrate loan repayment ability through financial projections. Provide monthly income statement and cash flow projections for one year. Include an explanation of all assumptions used in developing projections.
Include a list of existing business debt (if applicable).
Include a Personal Financial Statement as of the same date as the current income statement and balance sheet.
Supporting Documents
Personal Resume
Important Legal Documents (such as Articles of Incorporation)
Price quotes and/or estimates for equipment or construction to be paid for with loan funds
Other relevant information/exhibits that help showcase your business
Copy of the franchise agreement (if applicable)
Business Acquisitions
(When seeking financing for the purchase of an existing business, additional information regarding the proposed purchase should be included.)
The amount and breakdown (equipment, fixtures, real estate, goodwill, etc) of the purchase price.
List of assets to be transferred in the purchase.
Copy of the purposed buy/sell agreement or information about the proposed terms of the buy/sell transaction.
Reason that seller is selling the business.
