What Should You Include in an Effective Loan Proposal?
August 29, 2019
As a business owner seeking a loan for your business, you want to present a positive picture of the purpose and plans you have for your company. The best way to do this is to create a well-designed loan proposal demonstrating to bankers that your business is a sound investment likely to generate stable returns. Commercial lenders want to understand your business so they can build a lending plan that makes sense for your current operation. A solid loan proposal helps lenders clearly understand the risks and drastically improves your chances for approval.
When the time comes to prepare your loan proposal, there are a few key elements to gather regarding how much money your company needs to grow and how you plan to repay the loan.
This is your chance to describe your business and how the money you borrow will be used to create success. This summary should introduce the details included in the proposal.
Purpose of the Loan
This should be a detailed description of how you’ll use the borrowed funds through documentation, cost estimates, expansion proposals, and other relevant information.
This section should include both business and personal financial statements. Some lenders require individual tax returns for up to the last three years.
It’s obvious to most that a loan proposal would include detailed information about how the loan proceeds will be used paying for new staff, buying new materials, and renting new operating space — however, many neglect to explain how the company will source new customers to buy the end-product.
With today’s fast-moving digital communication platforms, bankers are taking a closer look at an applicant’s marketing plans. You must address close competitors, pricing fluctuation, unpredictable habits of buyers, and shifting trends. Knowing the risks of your business and having well-thought-out ways to deal with them will show lenders that you’re prepared for the responsibility of a business loan. Make sure the marketing section of your business loan proposal answers the following questions:
1. Who exactly are you trying to reach? Roughly how many of those people are out there?
This information is crucial in determining whether or not your business will succeed in the long–run. Never assume that your target audience is “everyone.” Hone in on those most likely to spend money on you over and over again.
2. Who are your direct competitors? Why should your customers choose you over other available options?
Once you know whom to target, outline the competitive advantages that your company provides and others do not. Think you don’t have any competition? Think again. There will always be another business out there just like your own trying to solve the same problem for customers.
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