Some crediting companies and service providers may demand a business loan proposal be included in the request for a business loan. You shouldn’t confuse a business loan proposal with a business plan.
While certain information mentioned in these documents may be similar, a business loan proposal is more focused on the loan sum and the repayment plan. Keep on reading to learn about the types of business loans, what makes a good business loan proposal and how to structure this paper.
What Makes A Good Business Loan Proposal?
So, how can you make a great business loan proposal? This document needs to be well-written and organized. It may be only a few pages long but you will need to attach certain documents as attachments.
It’s obligatory to showcase that your venture is financially sound so you will need to add some financial details to this document. When you apply to some online lending companies, like Trice Loans, you may submit a quick web request without additional documentation.
Many finance-related service providers need a business loan proposal that should be laid out in several ways. Some creditors may even have a preferred format for this paper so it pays to ask about it in advance. If your lender doesn’t have specific rules, you may use short sections to offer information and focus on some details. You may add relevant documents at the end of each section.
Types Of Business Loans
Small business owners have a few options to choose from when it comes to business loans. Here are the main types:
The U.S. Small Business Administration loans
The SBA approves 7(a) loans or 504 loans. Do you need more information about 7(a) small business loans? You can get program descriptions, requirements, and loan terms at GovLoans.gov as this is the most used type loan of in the Small Business Administration’s (SBA) business loan programs. The name of this lending option comes from section 7(a) of the Small Business Act, which authorizes the agency to issue business loans to American small ventures.
Traditional Term Loan
This lending option has a fixed repayment schedule. The interest rate may change over time. Generally, such term loans should be repaid in full within one to five years. You need to back this loan up with some collateral such as business equipment or property.
Unsecured Business Loan
This lending option is utilized for working capital and doesn’t need collateral or a guarantee. On the other hand, it demands monthly payments based on cash-flow projections. You need to have a good business credit rating to obtain this loan.
Business Loan Proposal Structure
Here are the typical sections a business loan proposal should include. If you’ve asked the creditor and they didn’t claim a specific format, you have some flexibility in the way you format this paper. However, there are certain sections you need to include in the structure.
#1 Cover Letter Or Executive Summary
This section is used to give a short description of your background. Provide a quick overview of your small business and how you are planning to utilize the loan money. This paragraph doesn’t need to be too long but if you want to provide more details, you can turn it into a separate cover letter to attach to your business loan proposal.
#2 Business Overview
This section should comprise information about the legal structure of your venture, its history, licenses required as well as a short summary of your current business activity. Your qualifications, experience, and skills can be covered in this paragraph. You may want to add some data about the current market, your customers, online marketing channels, and industry trends.
#3 Owner Investment
Your business equity may showcase your commitment to the success of your venture. Talk about the financial investment and cash sums you have in your business.
#4 Loan Request
Be honest and state how much you need to obtain. Request a precise amount of money for your business needs and offer details about what you will purchase. Provide estimates and quotes you’ve used in your calculations to prove the loan sum you request.
#5 Loan Repayment Plan
This section should include information on how you will be able to make on-time loan payments based on the quotes and repayment schedule you’ve been offered. Explain how cash reserves may be utilized to make payments during lean times in case fluctuating cash flow or sales are normal in your venture.
#6 Financial Statements
Both personal and business financial statements can be offered in this part of the business loan proposal. You can even attach the actual statements. Creditors may need to see your financial statements for the period of up to three prior years including balance sheets, income statements, as well as net worth reconciliations for your venture.
#7 Income And Cash-Flow Projections
Provide the details of the projected cash flow and income statements in this part. Talk about potential changes you may make to your venture in case these projections aren’t reached.
#8 Pledged Collateral
This part will include information on what the creditor will get if you don’t pay the loan off. Discuss the valuable assets you want to use as a guarantee to secure the loan.
#9 Existing Liabilities
Some service providers might ask about additional data on other debts you are having. Make a summary of your current debts and detailed information about your lenders, sums owed, the lenders’ addresses, and payment schedules.
Lastly, attach the papers mentioned in the sections of your business loan proposal.
The Bottom Line
Summing up, it’s important to have a well-written and organized business loan proposal to increase your odds of getting approved for a business loan. If you want to expand your existing venture, getting a business loan can be a smart idea. There are several types of small business loans so you should take some time to review their terms and interest rates to make a smart move and request the most suitable lending option.