If you are applying for a business loan you should be aware that process is more difficult compared to other kinds of loan, such as a personal loan or home mortgage loan. The lenders are more careful when they are evaluating applications for a business because the business loans are considered riskier than other loans, and they are trying to reduce their risk exposure.
When evaluating business loans, lenders evaluate both the applicants based on the information that they have available as well as business based on their conclusion do they find it profitable and viable. This is the reason why business loan applicants need to make a positive impression on the lenders with their loan proposal and application.
The loan proposal has two elements. The first one is an executive summary. The executive summary contains loan period, type of business and short description of business and industry, repayment conditions, the purpose and the usage of loan. The second element is the information about the company. The information should inform the reader on the history of the company, the location of the business, the nature of the business, the products and services of the company, the customers o the company, information on the competitiveness and growth.
You should include details about the marketing strategy, details on products and services that the company offers to the market, plans and projected growth for the company. If sometimes in the future you are preparing a geographical expansion or products and services extensions, those should definitely be included.
Another thing that could help business loan application is the management team of the company. By showcasing the capabilities and experience of the management team members you will greatly improve the chances for a business loan. The lenders are more willing to give a loan to a company managed by capable and experienced people. On the other hand, a wrong people in the management team could deter the lenders from giving loan.Historical records are also important in a business loan application. Historical records help the lenders evaluate the performance of the company.
If the company is new, then the owners financial records can be a base for business loan application. All of this records, except the tax income form ,should not be older than 90 days. Balance sheets, company financial records including profit and loss accounts, accounts receivable and short and long term debt and the net worth reconciliation record should be included in the business loan application if the loan is for existing company in operation. This information should also not be older than 90 days. If the loan is for a new business then a projected revenue, profits and costs should be included, as well as pro-forma balance sheet.
It’s a common thing for the lenders to require some collateral for the loan, just in case of default. You should make a list of assets that you want to use as a collateral for your loan. If you default on loan repayment than these assets will be sold so the lender can recover debt.
All the lenders require certain set of documents for loan application. You should check with each lender individually about the documents necessary, but the usual list include : license, references, article of incorporation, lease agreements etc.