How to Write a Loan Proposal

Business loan proposals should contain complete information to enable the lender to make a decision.

A complete loan proposal consists of filled-in forms that were provided by the bank or commercial lender plus supplementary information from the applicant. The resulting package should give the lender enough information to act on the loan request. The applicant can boost his chances for approval by providing a well-written, in-depth application that will help the lender reach a decision. The final proposal should inform the lender about the applicant, his business and how he will use the loan proceeds. The finished application package can be assembled in a loose-leaf binder.

Instructions

1. Tell the lender how you intend to use the proceeds of the loan. If the loan is for the purchase of a major item of equipment for your business, explain how the equipment will add to your company's capabilities and its revenue. If you are replacing a fleet of trucks, tell the lender how the newer models will be cost-effective and save on maintenance costs.

2. Describe your business. Tell the story of the company's origin and its development to the present day. An updated version of your company's business plan will serve this purpose. Be sure to include updated biographical summaries of company principals and other key personnel. Name important outside team members such as directors, attorneys, accountants and consultants.

3. Give the lender complete financial information. The forms in the loan package will specify what the bank or commercial lender needs. Generally, the financial information you provide should include annual financial statements of your business (balance sheet, income statement and the statement of cash flows) for the past three years, a financial statement for the year to date and your most recent tax returns. Financial statements should be prepared by a certified public accountant. Include financial projections of income, expenses and cash flows for the next three years.

   Give monthly values for the first year of the projections. If the loan applicant is a closely held company, the lender will require recent financial statements for the company's principals. Work with your accountant to be sure you are complying with the lender's needs.

4. Write a brief cover letter about your loan request. On the next page, summarize the highlights of the proposed loan in a term sheet, in outline form. State the amount of the requested loan, its purpose, the type of loan (term loan, revolving credit or another type), the maturity date, the collateral and the names of the persons who will act as guarantors.

5. Include any photographs of your business premises and other relevant material in an appendix, which should be located at the end of the application package.

References

• Bloomberg Business Week: How to Write a Loan Proposal
• Business Finance: How to Write a Loan Proposal