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Applying for a Loan |
by:
Matt Bacak |
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 became "##1 Best Selling Author" in just a few short
hours.
Recent Entrepreneur Magazine’s e-Biz radio show host
is
turning Authors, Speakers, and Experts into Overnight
Success Stories.
Discover The Secrets
http://promotingtips.com
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