There are many different formats you can use for a loan proposal. You may want to contact the lender to determine which format is preferred by the lender. Generally, a loan proposal should include these elements:
Step 2: Be sure to structure the elements of your loan proposal as follows:
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Summary - Like all good executive summaries, this is the last thing you should write, even though it sits at the front of the proposal document. Use it to summarize how the loan will be used, repaid, and the benefit it will bring to your business.
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Senior Management Profiles - Summarize key experience, qualifications and credentials, and be sure to include back-up detail in resume format.
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Business Description - Include your business history and a summary of current activity. You can summarize information from your business plan to show you understand the market and your industry. If you have company collateral, such as brochures, include these too.
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Projections - These include projected income and cash flow statements for 2-3 years. Be prepared to answer questions about what happens if your assumptions don’t materialize.
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Financial Statements - You must include business and personal financial statements and anticipate questions about fluxes and any major trends in your statements. You may also need to submit your income tax returns for the previous three years.
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Loan Purpose - This is why you are doing the paperwork in the first place! Explain in a detailed statement how you will use the funds.
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Amount - Be realistic about what you need and confident about how much you will be loaned. You are negotiating your future business growth after all.
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Repayment Plan - These will be assumptions, since you don’t know yet what the lender will finance. Outline your preferred repayment terms, but assume that this will need to be negotiated with your lender based on their risk assessment of your business.
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Describe collateral you would be willing to pledge as security for the loan. Every loan program requires at least some collateral that can be sold in case the cash generated by the small business isn’t sufficient to repay the loan. 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.
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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.
Negotiating the business loan
It is important that every entrepreneurs know how to negotiating their business loan with the financier when they are applying a business loan for their business. But as we know, there’s not everyone know how to effectively negotiated with the banker or their financer when come to the negotiating time. Now, lets we look into some useful tips on how to effectively negotiated the business loan.
At first, I would suggest that entrepreneurs need to be thoroughly familiar with their finance application or business plan. As we know, some entrepreneurs might not so familiar with their business plan as the plan is not prepared by them. But, in this case they have to put in some time and efforts to fully understand the business plan which is not really prepared by them. This is because if they are invite their accountant or business advisor to accompany them to the loan interview, answer all question s in the first instance. The lenders will be seeking to appraise your business acumen a financial management skills.
Secondly, entrepreneurs must be try to practices the language of the financier. This is because by adopting and practices some of the more common terms, you will be seen as an experienced operator, well-versed in things financial and an able negotiator.
As entrepreneurs, you also encourage to develop a firm appreciation of the value of your business to the financier. Have, at your fingertips, full details of the services utilised, services you may tap in the future and fee revenue generated by the lender as a result of its association with you. You should use this information to win a point or obtain a concession when negotiations are under way.
Entrepreneurs also need to establish their negotiation strategies in advances before go for the bank loan interview. They need to determine what aspect of the financing arrangement are highly important to them and what aspect are prepared to deal on or seek trade-offs and what should prepared to give up early to demonstrate a spirit of co-operation. Entrepreneurs must always determine the risk profile of the business by identify the weaknesses of the business and where it may be vulnerable in the eye of a financier.
There have several important factors that the entrepreneurs really need to be take care when there are negotiated with the financier. There are Interest rate payable, repayment schedule, security arrangement, the total amount of fee payable and etc.
Such for an example, entrepreneurs need to to consider they wish to select between the ficed or variable interest rate. If variable, link the interest rate to the market indicator. Advance
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