Tuesday, March 17, 2009

Business Capital: How to Create a Loan Proposal

The loan proposal is one of the most important documents you will need for your business to be successful. A powerful loan presentation will get lenders to want to invest in your business by loaning money to you. Though it may not always appear so, lenders want to make business loans; this is how they make money.

The loan proposal that you will be presenting to a lender should be very simple; yet very informative. This document should contain all the answers to the questions commonly asked by a loan officer.

The 12 Sections of a Loan Proposal

Executive Summary – a very brief overview of your business and highlights of what is in the rest of the document; this is where the loan officer will decide if he is interested in reading the rest. Make sure this says a lot with few words and gains his interest.

Term Sheet – bullet points of the deal you are proposing: The amount you need to borrow, interest rate you’re prepared to pay, monthly, quarterly or annual payments, interest only or principal and interest payments, short-term or long-term, etc… This section will show that you understand about borrowing money and that you are seeing things from their prospective – loaning money.

Your Relationship with the Lender – Include the information if you currently have a mortgage payment, car payment, or bank account at the institution you are visiting. Also include family, friends, or advisory board members who have a relationship with this lender. (Make sure you have their permission to name them in your business documents) This information will not necessarily make them say “yes”, but it will give them cause to consider, as you are showing that you are respected by others who already have a good relationship with this lender.

Your Credit Report – Show responsibility if you have great credit; display sophistication by knowing your credit score. On the other hand, if you have some negative items on your credit report, highlight them and add a page with an explanation as to how this occurred and how you handled it. There is no reason to not provide this information; they are going to run your credit report anyway; why not let them see it here first, as your side of the story?

Pictures of Your Business – Right now, you’re just a well-dressed, well-prepared loan application; the lender really doesn’t know about your business. Pictures validate your business; just a few, high-quality pictures, of your building, employees, equipment or something visual to add to your presentation.

Board of Advisors – With their permission, list your board of advisors. Lenders love it when you can admit that you don’t know it all. Here, you are signaling that you are not an egotistical know-it-all who will eventually run the business into the ground. A list of credible people who are respected leaders in the community will be impressive to the lender.

Professional Relationships – Who are you utilizing in your business? Show your lender how serious you are about success by showing who does your books, provides legal services, business consulting, etc… Use people who are well known and respected in the area.

Acknowledgements – Achievements, accomplishments, credentials, awards, published articles and recognition in the news or media will impress a lender. If you’re highly respected in the area, it could be in a lender’s best interest to have you as a client.

Financial Statements – true and accurate record of what has happened in your company. Also, include Financial Projections – what you expect to happen in the next 6, 12, 24 or 36 months. It is OK to have your CPA prepare these documents for you. Your CPA can make projections based on the data in your business plan and marketing agreement.

Business Plan – This is what distinguishes you from your competition; include it with your loan proposal

Employee Handbook – policies, procedures, job descriptions, benefits, compensation and all employee issues are in this book; the employee handbook clearly defines the rules so that you do not have to repeat them over and over again.

Employee Training Manual – This is an outline to show how you will hire and prepare new help as it becomes needed; it shows that you are prepared to handle future success.

Lenders generally have two fears. One is the fear that you will fail – If you should fail, you will not be able to repay your loan.

The second fear is the fear that you will succeed – Yes, they fear that you might be too successful and that you are not prepared for an increased volume of business. You might not be able to meet demand and deliver; you might not have enough trained employees to fill orders; customers will be disappointed, your reputation will suffer, and your business could ultimately fail.

The last two sections of your loan proposal, the employee handbook and the employee training manual show that you are prepared to hire new help if you need to.

A well prepared loan proposal will give lenders the impression that you are well prepared to go into business and to be successful. You will be presenting yourself as an intelligent, experienced business person with the necessary qualities and attributes to operate and grow your business.

Bill Bartmann teaches entrepreneurs all they need to know about how to build a professional loan proposal in his online course, Billionaire Business Systems. Bill Bartmann has built 7 businesses in 7 industries; through his experiences, he has learned a lot. Bill Bartmann shares everything he knows in this course; http://www.billionaireu.com

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