Preparation of a successful business loan proposal is the first step to get your loan request approved by lender. Getting your loan request approved depends largely on how you present yourself, business, and financial needs to the lender. So, the business loan proposal is the first contact that connects your business to the lenders. Therefore, you need to write a successful business loan proposal that presents your business in the best and professional way.
The lenders use your business loan proposal to determine whether your business has the required experience, strong management, understanding of the industry, and ability of the business to repay the loan. However, your main focus is to convince the lender that you are ready and able to lead your business to success and repay the loan. To determine your ability to repay the loan, the lender will need to know your credit history. This is done by requesting for your personal and business credit reports from credit bureaus.
So, you need to answer the following before you start preparing your business loan proposal:
- The amount needed by the business.
- How to make use of the money by the business.
- How the business will repay the loan.
- What to do if the business fails to repay the loan
However, there are different formats to prepare your business loan proposal. The following elements need to be included in your proposal:
The loan proposal begins with the executive summary which provides a clear and concise overview of your business. This section provide a brief description of your business, background, nature of business, the financial needs of the business that require finance, and the amount required.
This section involves a full description of your business organization in the business loan proposal. However, it provides a full description of the history, current operating activity, results, and strategy of the business.
This section involves the description of the skills, knowledge, experience, qualifications of your business management team. This will show the lender the capacity of your management to make the project successful.
This section contains the financial statements of the business. These include income statement, Balance sheet), cash flow statement, and statement of changes in equity. However, you need to provide the financial statements for between three to five years for an existing business. If your business is a new one, provide projected financial statements.
This section describes the industry, market, and customer of your business. So, it provides answers to different marketing questions on the availability of market for products, the competitors in the industry and their strength and weaknesses, customer profile, your business competitive advantage.
This section explains the operational capacity to satisfy both potential and existing markets.
This section states the financial need of your business, how the amount is determined which includes all the necessary costs like building cost, machine and equipment costs, and others, the reasons for the financial need, and how to use the loan.
Loan repayment schedule
This section contains a detailed loan repayment schedule based on the projected sales and cash flow. However, this is prepared based on the expected terms, conditions, interest rate, and others.
This section describes the collateral security to pledge for the loan in case the business failed to repay the loan at the agreed time. If the company failed to repay the loan, lenders can sell the collateral to recover their money.
More so, other documents like lease agreement, certificate of registration, articles of association, partnership agreement, franchise agreement, and others if required by lenders.
In conclusion, preparation of a successful business loan proposal requires professional knowledge. So, the proposal must convince the lenders of your capacity to make the business successful and be able to repay the loan.
Afeez is one of the founding partners of Marasas Consulting limited. He consults for both individuals and entities in the area of accounting, management, audit, tax, and investment. He has a wide range of experience both online and offline which allows him to provide relevant and timely professional advice and assistance to business owners with their accounting, tax, management, audit, and investment plans.
Afeez is a member of the Institute of Chartered Accountants of Nigeria (ICAN) and a member of the Nigerian Institute of Management (Chartered). He is a certified Google analyst and strategist. He earned his Bachelor degree in Management and Accounting from Obafemi Awolowo University, Ile-Ife, Nigeria, and earned an ordinary national diploma in Accountancy from The Polytechnic of Ibadan, Oyo State, Nigeria. He earned certification in “Excel Crash Course” and “Reading of Financial Statement” from Corporate Finance Institute, Canada.
Afeez is dedicated to helping clients achieve business success by helping them to establish solid and sound accounting, tax, and financial processes.