Previous | Inherited IRAs for children Next | How to safely use digital banking
May 16, 2022 / F&M Trust
How to Prepare an Effective Loan Proposal

How to Prepare an Effective Loan Proposal

Banks have extensive experience evaluating existing companies to determine if they're good candidates for commercial loans.

Ideal candidates for business loans generate sufficient cash flow to cover loan payments; have a solid, long-term track record of meeting financial obligations; have financial reserves to weather unexpected downturns or setbacks; and have collateral to put up for security.A cartoon woman checks items off a list for her business loan proposal

Regardless of your company's history, when seeking a loan, the goal is to present the best possible business case in the form of a loan proposal. A well-designed, well-written proposal shows bankers that your business is a sound investment that generates solid, stable returns. Transparency is a given.

When preparing a loan proposal, gather information to answer the following questions:

  • How much money does your company need?
  • How will your company use the loan?
  • How will the business repay the loan?
  • Why is your company a reliable candidate for a loan?
  • What will your company do if it's unable to repay the loan?

Those are the five questions all lenders ask, and if you don't have solid answers, pull together the information required to provide answers before writing the proposal.

When you're done collating the facts and figures, include the following key elements in your loan proposal:

  • Executive Summary. Briefly describe your business, your market, and how the loan will be used to help the company succeed. Think of the Executive Summary as your "elevator pitch." Then, flesh out the summary in subsequent sections.
  • Business Summary. Describe the history of the business, current activity, and results. Include brochures or other business identity collaterals in an appendix. While your loan proposal is a "sales" document, present facts, not marketing materials, so use a "soft sell" in your proposal.
  • Management Profiles. Banks want to know to whom they'll be lending money. Describe your experience, qualifications, credentials, and skills. Include manager resumes. Establish your credibility and track record as a business owner and as a good corporate citizen.
  • Financial Statements. Include business and personal financial statements. Some banks require personal tax returns for the previous one to three years.

Be prepared to provide profit and loss statements, balance sheets, and other financial history documentation.

  • Financial Projections. A loan proposal includes earnings projections for the coming two to three years. Highlight current income, cash flow, and growth initiatives.
  • Amount of Loan. How much money do you need? Focus on the methods used to determine the loan amount. Include quotes for equipment, supplies, building costs, and so on.
  • Purpose of Loan. In detail, describe how you'll use borrowed funds. Include written documentation, cost estimates, expansion proposals, and other relevant information in this section.
  • Marketing Plan. Clarify how you'll grow the company by sourcing new customers. Details. That's what lending banks want.
  • Loan Repayment Plan. Describe the terms you hope to receive (interest rate, length of term, etc.). Show how you can make repayment based on sales and cash-flow projections.
  • Inventory of Collateral. What happens if you can't pay back the loan? If you plan to purchase a building, facilities, or equipment, those items are collateral. You can also use personal possessions for collateral, as well. Collateral reduces lender risk and increases chances for loan approval.

A bank wants to understand your business so it can lend with confidence. The bank will assume some risk, but a well-developed loan proposal helps it clearly understand the risks and improves your chances for loan approval.

Recent Articles
How to safely use digital banking
How to safely use digital banking

How to safely use digital banking

October 03, 2024 / Ray Wills

It’s never too early to save for the holidays
It’s never too early to save for the holidays

It’s never too early to save for the holidays

September 26, 2024 / Pheonix Gilbert

How to set SMART financial goals
How to set SMART financial goals

How to set SMART financial goals

September 19, 2024 / Pheonix Gilbert

Why it’s important to invest financially early in your career
Why it’s important to invest financially early in your career

Why it’s important to invest financially early in your career

September 05, 2024 / Warren Hurt

Is it a good idea to pay off my mortgage early?
Is it a good idea to pay off my mortgage early?

Is it a good idea to pay off my mortgage early?

August 22, 2024 / Erin Sunday

How to save on back-to-school shopping
How to save on back-to-school shopping

How to save on back-to-school shopping

August 15, 2024 / Megan Brindle

Avoiding the pitfalls of debt and overusing credit
Avoiding the pitfalls of debt and overusing credit

Avoiding the pitfalls of debt and overusing credit

August 08, 2024 / Dave Winters

Teaching children to save money
Teaching children to save money

Teaching children to save money

July 24, 2024 / Mary Kate Mumper

What to consider when weighing a job offer
What to consider when weighing a job offer

What to consider when weighing a job offer

July 17, 2024 / Levi Crouse

Join our e-newsletter

Sign up for our e-newsletter to get new content each month.

NOTICE: YOU ARE LEAVING F&M TRUST!

You are now leaving the F&M Trust website. Links to third-party sites are provided for your convenience. Such sites are not within our control and may not follow the same privacy, security or accessibility standards as ours. F&M Trust neither endorses nor guarantees offerings of the third-party providers, nor is F&M Trust responsible for the security, content or availability of third-party sites, their partners or advertisers.