How to Prepare a Commercial Loan Proposal By Winston Rowe And Associates
Approval of your loan commercial loan request depends on how well you present yourself, your business, and your financial needs to the lender. This article is a general overview.
By: Winston Rowe and Associates
To help determine your ability to repay the loan, lenders will often order a copy of your personal and business credit reports from one of the three major credit bureaus: Equifax, Experian, or TransUnion.
Before you begin writing your proposal, there are four things that you need to be able to clearly address.
How much money you will need.
How your business will use the money.
How you will repay the loan.
What you will do if your business is unable to repay the loan.
Generally, a loan proposal should include these elements:
Describe the experience, qualifications, and skills of each owner and key member of your management team.
State the amount of money you need and how you determined this amount. Include quotes for equipment or supplies, for building costs, etc.
Describe the terms you hope to receive (interest rate, term, etc.). Show how you can meet that repayment schedule based on sales and cash flow projections.
All loans should have at least two identifiable sources of repayment. The first source is ordinarily cash flow generated from profitable operations of the business. The second source is usually collateral pledged to secure the loan.
Personal Financial Statements
Include financial statements for all owners with 20 percent or more interest in the business. These statements should not be more than 90 days old. Some lenders may also require tax returns for the previous one to three years.
Business Financial Statements
Include complete financial statements (balance sheet, income statement, and reconciliation of net worth) for the last three years plus a current interim financial statement (not more than 90 days old).
Skin in the Game
An owner must put some of his/her own money into the business to get a loan; the amount depends on the type of loan, purpose and terms.
Equity can be built up through retained earnings or by the injection of cash from the owner. Most lenders want to see that the total liabilities or debt of a business is not more than four times the amount of equity.
Winston Rowe and Associates prepared this article they are a national consulting firm. You can contact them at https://www.winstonrowe.com