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