How to Write a Business Loan

A business loan proposal requires financial forecasts.

Raising capital remains a challenge for all business owners. Successful businesses secure financing to support both short-term and long-term operations, while floundering businesses often fail to find lenders willing to provide a loan. A thoughtful and thoroughly researched business loan proposal goes a long way toward finding financiers; a haphazardly prepared business loan proposal turns prospective lenders off. Writing a solid business loan proposal takes serious effort and time but increases the likelihood of securing a loan.

Things You'll Need

• Business plan
• Balance sheets from the past three years
• Income statements from the past three years
• Revenue and net income forecasts

Instructions

1. Prepare a business plan. Business loan proposals require less detail than a full business plan, but the proposal draws information directly from the business plan. The business plan determines the viability of the business, analyzes short- and long-term financing needs, details prospects for growth, outlines the customer base, reviews competition, provides financial forecasts and details management biographies. Preparing a business plan grooms a business owner to explain the necessity of a business loan to a lender.

2. Calculate the loan amount and term required. Lenders demand businesses request loans only for legitimate purposes in appropriate amounts. Apply for only the funds the business actually needs; high-balling a loan amount turns off prospective lenders and leads to refusal of funds. A short-term loan, typically less than a year, helps finance working capital and accounts receivable or provides a line of credit. Long-term financing pays for real estate and capital investments.

3. Propose a repayment plan. Lenders are primarily concerned with receiving their loan funds back and want to see a viable repayment plan. Your repayment plan should take into account realistic projections of cash flow, revenue and income.

4. Write segment headers for the loan proposal. Segment headers typically include general information, business description, management profile, market information and financial information.

5. Fill in each section accurately and thoroughly. Your financial information should include balance sheets and income statements for the past three years and revenue and net income forecasts.

6. Hire a consultant or an accountant to help you prepare accurate financial projections for your loan plan if you lack that experience. Financial projections indicate a business' ability to repay loan funds; lenders find these an essential part of any loan proposal.

Tips & Warnings

• Ask the lender to approach the Small Business Administration (which guarantees up to 80 percent of a small-business loan) if the lender declines the loan request.

• Improve chances of success by investing personal equity into the business. Prospective lenders want to see entrepreneurs with a vested interest in success.

• Analysis of business loan proposals takes significant time to underwrite, and lenders often delay decisions.

• Business owners often find obtaining a business loan a complex and frustrating process; plan efficiently and early.

References

• U.S. Small Business Administration: Programs and Services to Help You Start, Grow and Succeed
• U.S. Small Business Administration: Writing a Business Plan
• Arkansas Small Business Technology and Development Center: Do's and Don'ts of Writing a Business Loan Proposal

Resources

• Nevada Small Business Dev. Ctr.: "What do Lenders Really Need to Grant Small Business Loans?"
• Tennessee State University: "How to Write a Loan Proposal"