COMPONENTS OF A STRONG LOAN PROPOSAL

Components of a strong loan proposal is what every business man should be abreast with in order to be able to prepare a good argument in a situation of seeking financing for his small business. When approaching a lender for money, it is important that you develop a strong loan proposal that backs up the some of money you are requesting with facts and figures. Without these facts and figures you may be turned down even if your business idea is profitable. Many business owners are turned down by lenders not because their business ideas are not marketable, but because they fail to present facts and figures their lenders need to adequately evaluate their business and ascertain if they have the financial capacity to repay their loan if granted. Merely asking for a loan is a guarantee that you will be technically turned down. Therefore, it is imperative that you prepare a strong loan proposal whenever you are approaching any lending individual or institution.

To enable you put this together in an effective and efficient manner, I am going to show you the components of a strong loan proposal. When carefully applied will enable you to easily access financing for your small business start up or expansion. The components of a strong loan proposal include:

1.     BUSINESS OVERVIEW: Give detail description of your business. This is include the line of business, its products, its market, your market share, your marketing strategies, your competition, your strategies to overcome competition, your distribution channels, your challenges, your expected return on investment, your break even analysis, your profitability quotient and the environmental impact and control of your business.

Lenders want to know all these to enable them understand your business and it’s earning capacity. Without this understanding they will find it difficult to loan you the money you are requesting for. No lender wants to throw his or her money into an unprofitable business, so you must be able to convince them beyond every reasonable doubt that your business is profitable.

2.     FINANCING OVERVIEW: This is a detailed description of your financing need. Every lending institution and lender wants to know exactly how much your business need. Do not only state how much your business need, but demonstrate graphically with figures how this money will be appropriated. Determine and state your business start up and operation costs.  It is also important at this point to tell your lender or financier other sources you are using to obtain financing, if there is any.

3.     LOAN TYPE: You should be able to state the loan type that you need and stick to its terms. Before choosing a loan type it is important that you review and understand the advantages and disadvantages of the various loan options. This will enable you to make the right choice by determining which loan works best for financing your small business.

From start-up business loans to seasonal loans, the options of loan facility you propose have great impact on how you will repay it. Their terms are different. No financing institution should be allowed to impose on you financing options that will frustrate your business. For your business to grow it most operates under a flexible and favorable financing terms. Make sure you seek the counsel of a knowledgeable accounting firm or a reliable deal maker in your pursuit of gaining finance for your small business.

4.     OUTSOURCE LOAN SERVICING: Use a loan serving company to mange the repayment process where you lack the capacity for effectiveness and efficiency in this regard.  The repayment process includes payment processing and record keeping. This does not display your inability to manage the business funds, but it goes a long way to reassure your lender or financier that they won’t have to deal with awkward conversations that might inhibit your relationship.

5.     EFFECTIVE AND EFFICIENT PAYMENT LAYOUT: Carefully state how you intend to repay your loan. Based on the loan option you selected. An inclusion of a well reviewed sample payment schedule will be of great value in showing potential financing institution or individual how you intend to pay the loan. To prevent default I will advice that you use a loan repayment plan that involves installment payment structured around a flexible duration. This will give the business enough space to grow.

If the amount you are paying out of your business is too much, your business will be financially starving and you will not be able to embrace other profitable business opportunities that will enhance your financial standing. Do not use more than 40% of your business profit to service your loan repayment. Remember, your business needs liquidity to be able to judiciously pay your loan.

6.     LEGALLY-BINDING LOAN AGREEMENT: Ensure that you prepare a legally binding loan agreement. This will protect you in case of future argument. It will be your evidence on any issue bordering on confusion and controversy in the process of making payment according to the provisions of your loan repayment schedule. Let your potential financing institution, and or lender review and sign an actual loan agreement legally prepared by an attorney specialized in handling financial matters. Seeing an agreement in writing will show your commitment and make potential lenders, and or financier feel comfortable about giving you the loan you need. It will also act as a check on their actions in the process of making your payment.

7.     COLLATERAL: Where the money requested is big, it is wise to include a list of what you are willing to use as collateral to secure the loan. By this single act you are demonstrating to your lender that their investment in your business is protected. This should be clearly demonstrated in a tabular sample worksheet.

To finance your business you need money, to get this money you will need to contact those who have it. To make those who have the money to give it to you demands your ability to organize yourself in a way that tells them you are serious about getting the money. The above components of a strong loan proposal are your answer to accessing money to finance your business with ease.

To your business success!