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Applying for a Business
Loan |
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by: Matt
Bacak |
Copyright 2005 The
Powerful Promoter
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
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