| The process of applying for a business loan | | | | In any loan application, historical records |
| is a stringent one as compared to the | | | | are essential to be used in evaluating the |
| standard procedures in obtaining a home | | | | performance of a company. As new companies do |
| mortgage loan or a personal loan. This is | | | | not yet have these records, the financial |
| probably due to the fact that business loans | | | | records of the owners will be used as the |
| contain a greater risk element as compared to | | | | basis of evaluation. Income tax returns forms |
| other loans. Therefore, lenders need to | | | | are also required by lenders. All of these |
| exercise greater caution and emphasis when | | | | records provided should be the latest copies |
| evaluating business loan applications in | | | | less than 90 days old, with the exception of |
| order to minimize their risk exposure. | | | | the income tax returns form. |
| | | | |
| With that, lenders evaluate their applicants | | | | If the loan is applied for an existing |
| based on the information that are provided as | | | | company in active operations, company |
| well as their judgment of the viability and | | | | financial statements, including profit and |
| profitability of the business being financed. | | | | loss accounts, balance sheets and the net |
| Thus, business loan applicants will be | | | | worth reconciliation record should be |
| required to submit a loan proposal along with | | | | included in the loan proposal. Again, all of |
| their applications with the purpose of | | | | this information should also be the latest |
| creating a positive impression upon the | | | | and less than 90 days old. Additionally, a |
| lender. | | | | listing of accounts receivables and other |
| | | | short term and long term debt should be |
| The first element of a loan proposal is an | | | | attached. |
| executive summary, providing short | | | | |
| descriptions of the type of business and the | | | | On the other hand, if the loan application is |
| industry, the purpose and usage of the loan, | | | | submitted for a new business, a pro-forma |
| the proposed repayment conditions as well as | | | | balance sheet and profit and loss account |
| the intended loan period. After that, the | | | | should be provided. Apart from that, a cash |
| company information is provided, enriching | | | | flow projection for the upcoming year is |
| the reader with the nature of the business, | | | | drafted to indicate the possibility of |
| the location of the business, company | | | | recovering the debt. This also means that |
| history, the products or services provided, | | | | projected revenue, profits, costs incurred |
| key differentiation factors of the company or | | | | and expenditure should be listed out with |
| the product, the general growth of the | | | | definite explanations provided as well as a |
| industry, competitive information, growth | | | | list of assumptions. |
| potential and target customers. | | | | |
| | | | If you possess assets that you wish to use as |
| It would help if you could include your | | | | collateral for your loan, details for this |
| company marketing strategy, detailed product | | | | should be provided to the lender as well. It |
| information, historical information as well | | | | is often common for lenders to request for |
| as projected growth plans for the company. | | | | dual sources of repayment in the event that |
| Apart from that, if you plan to incorporate | | | | one source is defaulted. This means that if |
| product or service extensions in the future, | | | | the business owner defaults on his |
| you should provide these descriptions within | | | | repayments, the collateral can be sold in |
| your loan proposal. If possible, geographical | | | | order to recover debt. |
| expansion plans will help in the proposal. | | | | |
| | | | Finally, other documents normally required |
| The next area that needs to be showcased in | | | | for a loan application would be items like |
| the proposal would be the credentials and | | | | the article of incorporation, lease |
| experience of each member of the management | | | | agreements, partnership agreements, license, |
| team. Impressive credentials will provide | | | | references, etc. As the list of required |
| assurance to the lender that the company is | | | | documentation, information and attachments |
| managed by individuals who are responsible | | | | differs between lenders, it is best to check |
| and capable. This is important as having the | | | | with the individual lender on their specific |
| wrong people managing the company could be | | | | information and documents required to be |
| detrimental for the business. | | | | attached with the loan proposal. |
| | | | |