How to Write a Commercial Loan Proposal

Include current financial information with commercial loan proposals.

A commercial loan proposal is a formal, written loan request to a bank, accompanied by supporting information. Typically, a company that needs to finance something, such as the acquisition of a new asset, will include in the proposal all of the information that the bank needs to consider for the request. For the bank's convenience, the written material can be bound or organized in a loose-leaf binder. Complete, well-written loan proposals increase the odds for success.

Instructions

1. Organize the highlights of the proposal in a term sheet, in outline form. The term sheet summarizes the main points of the proposal and is usually located at the beginning of the loan proposal package. Include the amount of the loan; the purpose; the type of loan (term loan, revolving credit or other); the repayment date or expiration date; the collateral and names of guarantors. Leave the interest rate open.

2. Give a detailed report on how your company will use the proceeds of the loan. Tell the bank how this loan will improve your business. Explain how the benefits to your company justify the debt. If you are acquiring a tangible asset, include photographs or other descriptions of the asset.

3. Tell the bank about your company and its business. If you are approaching the bank for credit for the first time, provide your company's up-to-date business plan. If your company has a relationship with the bank, include a letter describing your current level of business and any significant issues.

4. Provide updates of financial information to ensure that the bank has complete information on your business. This includes annual financial statements (balance sheet, income statement and statement of cash flows) for the last three years, a complete financial statement for the year to date and tax returns. If the financial statements are not audited, they should at least be prepared by a certified public accountant. Include financial projections for at least three years; the first year should show monthly values. The projected income statement should show the effect of the loan, the addition of the new asset and how the debt will be serviced. If the applicant is a small business or a closely held company, include current personal financial statements of company principals.

References

• Business Week: How to Write a Loan Proposal
• BusinessFinance.com: How to Write a Loan Proposal
• Arkansas Small Business and Technology Development Center: Do's and Don'ts of Writing a Loan Proposal