The process of applying for a business loan is a stringent one as compared to the standard procedures in obtaining a home mortgage loan or a personal loan. This is probably due to the fact that business loans contain a greater risk element as compared to other loans. Therefore, lenders need to exercise greater caution and emphasis when evaluating business loan applications in order to minimize their risk exposure.
With that, lenders evaluate their applicants based on the information that are provided as well as their judgment of the viability and profitability of the business being financed. Thus, business loan applicants will be required to submit a loan proposal along with their applications with the purpose of creating a positive impression upon the lender.
The first element of a loan proposal is an executive summary, providing short descriptions of the type of business and the industry, the purpose and usage of the loan, the proposed repayment conditions as well as the intended loan period. After that, the company information is provided, enriching the reader with the nature of the business, the location of the business, company history, the products or services provided, key differentiation factors of the company or the product, the general growth of the industry, competitive information, growth potential and target customers.
It would help if you could include your company marketing strategy, detailed product information, historical information as well as projected growth plans for the company. Apart from that, if you plan to incorporate product or service extensions in the future, you should provide these descriptions within your loan proposal. If possible, geographical expansion plans will help in the proposal.
The next area that needs to be showcased in the proposal would be the credentials and experience of each member of the management team. Impressive credentials will provide assurance to the lender that the company is managed by individuals who are responsible and capable. This is important as having the wrong people managing the company could be detrimental for the business.
In any loan application, historical records are essential to be used in evaluating the performance of a company. As new companies do not yet have these records, the financial records of the owners will be used as the basis of evaluation. Income tax returns forms are also required by lenders. All of these records provided should be the latest copies less than 90 days old, with the exception of the income tax returns form.
If the loan is applied for an existing company in active operations, company financial statements, including profit and loss accounts, balance sheets and the net worth reconciliation record should be included in the loan proposal. Again, all of this information should also be the latest and less than 90 days old. Additionally, a listing of accounts receivables and other short term and long term debt should be attached.
On the other hand, if the loan application is submitted for a new business, a pro-forma balance sheet and profit and loss account should be provided. Apart from that, a cash flow projection for the upcoming year is drafted to indicate the possibility of recovering the debt. This also means that projected revenue, profits, costs incurred and expenditure should be listed out with definite explanations provided as well as a list of assumptions.
If you possess assets that you wish to use as collateral for your loan, details for this should be provided to the lender as well. It is often common for lenders to request for dual sources of repayment in the event that one source is defaulted. This means that if the business owner defaults on his repayments, the collateral can be sold in order to recover debt.
Finally, other documents normally required for a loan application would be items like the article of incorporation, lease agreements, partnership agreements, license, references, etc. As the list of required documentation, information and attachments differs between lenders, it is best to check with the individual lender on their specific information and documents required to be attached with the loan proposal.
About the author:
Matt Bacak, The Powerful Promoter and Entrepreneur Magazine e-Biz radio show host, became a "##1 Best Selling Author" in just a few short hours. He has helped a number of clients target his specialty, opt-in email direct marketing systems. The Powerful Promoter is not only a sought-after internet marketer but has also marketed for some of the world's top experts whose reputations would shrivel if their followers ever found out someone else coached them on their online marketing strategies. For more information, visit Bacak's site at http://www.powerfulpromoter.comor sign up for his Powerful Promoting Tips at http://www.promotingtips.com
Many people who wish to start their own business need an
injection of financial capital at the beginning of a business; the main
source of funding for entrepreneurs is business loans.
Let's take a look at what you should expect if you plan to
apply for one.
First of all, you should know that most lenders have their
doubts when it comes to lending money to a first-time business owner.
You're considered a high business risk at this point, and you should go in
to your loan negotiations armed with a few advantages. Of course, the
ideal option is to run your business for a few years, even just out of
your home, and turn a good profit before approaching a bank for a loan.
That shows that you have the ability to make money and
that your business won't flop before the Open sign shows up on the door.
But if this isn't possible, if you need the cash before you can begin at
all, then chances are you will need to offer some type of collateral.
Collateral can be anything from your car to your home and everything in
between. Depending on the size of the loan, you may require some pretty
hard assets for collateral. The lender is not interested in whether or not
your business will make money, aside from the extent that will allow you
to pay them back on time. They simply don't want to lose out on the loan,
and so you'll have to find some way to back yourself up.
Backing up your loan with assets, if you have them, is a
good route - provided you have enough confidence in your financial
situation to ensure you are not going to lose your collateral. If you
don't have enough assets to stand in for your loan, another option is to
find a cosigner. Chances are you won't get as much cash as you would if
you had the assets. But having someone with good credit who is willing to
sign onto your loan and promise to pay if you don't can be the factor that
gets you through the door. This is a good way for friends and family who
believe in your business to help you get it off the ground, even if they
don't have the money to loan you up front.
When it's time to borrow, do some comparison-shopping
among banks and credit associations, and don't stop until you find the
lowest interest rate possible. You're already gambling a lot here-
minimize the amount you will have to pay back by doing your homework and
choosing the company that offers you the best deal. If you can't get
enough to cover your beginning business expenses, consider borrowing part
of the cash from a friend or relative if you can, or even asking for
investors, such as customers who believe in your business, to help out.
Don't accept a high-rate, high-risk business loan just because it offers
you the biggest amount.
The small business loan: The first step in a long chain of
financial events. If you take the right step, it could be your leap into
the business world.
Afrikaans 
Albanian 
Amharic 
Arabic 
Armenian 
Azerbaijani 
Basque 
Belarusian 
Bengali 
Bosnian 
Bulgarian 
Catalan 
Cebuano 
Chichewa 
Chinese (Simplified) 
Chinese (Traditional) 
Corsican 
Croatian 
Czech 
Danish 
Dutch 
English 
Esperanto 
Estonian 
Filipino 
Finnish 
French 
Frisian 
Galician 
Georgian 
German 
Greek 
Gujarati 
Haitian Creole 
Hausa 
Hawaiian 
Hebrew 
Hindi 
Hmong 
Hungarian 
Icelandic 
Igbo 
Indonesian 
Irish 
Italian 
Japanese 
Javanese 
Kannada 
Kazakh 
Khmer 
Korean 
Kurdish (Kurmanji) 
Kyrgyz 
Lao 
Latin 
Latvian 
Lithuanian 
Luxembourgish 
Macedonian 
Malagasy 
Malay 
Malayalam 
Maltese 
Maori 
Marathi 
Mongolian 
Myanmar (Burmese) 
Nepali 
Norwegian 
Pashto 
Persian 
Polish 
Portuguese 
Punjabi 
Romanian 
Russian 
Samoan 
Scottish Gaelic 
Serbian 
Sesotho 
Shona 
Sindhi 
Sinhala 
Slovak 
Slovenian 
Somali 
Spanish 
Sundanese 
Swahili 
Swedish 
Tajik 
Tamil 
Telugu 
Thai 
Turkish 
Ukrainian 
Urdu 
Uzbek 
Vietnamese 
Welsh 
Xhosa 
Yiddish 
Yoruba 
Zulu
