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