by: Matt Bacak

The process of applying for a business loan is a stringent one as
compared to the standard procedures in obtaining a home mortgage
loan or a personal loan. This is probably due to the fact that
business loans contain a greater risk element as compared to other
loans. Therefore, lenders need to exercise greater caution and
emphasis when evaluating business loan applications in order to
minimize their risk exposure.

With that, lenders evaluate their applicants based on the
information that are provided as well as their judgment of the
viability and profitability of the business being financed. Thus,
business loan applicants will be required to submit a loan proposal
along with their applications with the purpose of creating a
positive impression upon the lender.

The first element of a loan proposal is an executive summary,
providing short descriptions of the type of business and the
industry, the purpose and usage of the loan, the proposed repayment
conditions as well as the intended loan period. After that, the
company information is provided, enriching the reader with the
nature of the business, the location of the business, company
history, the products or services provided, key differentiation
factors of the company or the product, the general growth of the
industry, competitive information, growth potential and target
customers.

It would help if you could include your company marketing strategy,
detailed product information, historical information as well as
projected growth plans for the company. Apart from that, if you plan
to incorporate product or service extensions in the future, you
should provide these descriptions within your loan proposal. If
possible, geographical expansion plans will help in the proposal.

The next area that needs to be showcased in the proposal would be
the credentials and experience of each member of the management
team. Impressive credentials will provide assurance to the lender
that the company is managed by individuals who are responsible and
capable. This is important as having the wrong people managing the
company could be detrimental for the business.

In any loan application, historical records are essential to be used
in evaluating the performance of a company. As new companies do not
yet have these records, the financial records of the owners will be
used as the basis of evaluation. Income tax returns forms are also
required by lenders. All of these records provided should be the
latest copies less than 90 days old, with the exception of the
income tax returns form.

If the loan is applied for an existing company in active operations,
company financial statements, including profit and loss accounts,
balance sheets and the net worth reconciliation record should be
included in the loan proposal. Again, all of this information should
also be the latest and less than 90 days old. Additionally, a
listing of accounts receivables and other short term and long term
debt should be attached.

On the other hand, if the loan application is submitted for a new
business, a pro-forma balance sheet and profit and loss account
should be provided. Apart from that, a cash flow projection for the
upcoming year is drafted to indicate the possibility of recovering
the debt. This also means that projected revenue, profits, costs
incurred and expenditure should be listed out with definite
explanations provided as well as a list of assumptions.

If you possess assets that you wish to use as collateral for your
loan, details for this should be provided to the lender as well. It
is often common for lenders to request for dual sources of repayment
in the event that one source is defaulted. This means that if the
business owner defaults on his repayments, the collateral can be
sold in order to recover debt.

Finally, other documents normally required for a loan application
would be items like the article of incorporation, lease agreements,
partnership agreements, license, references, etc. As the list of
required documentation, information and attachments differs between
lenders, it is best to check with the individual lender on their
specific information and documents required to be attached with the
loan proposal.



About the author:
Matt Bacak became "##1 Best Selling Author" in just a few short
hours.
Recent Entrepreneur Magazine’s e-Biz radio show host is
turning Authors, Speakers, and Experts into Overnight Success
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