Handle with care. That's sound advice for any small-business owner who's crafting a loan proposal to bring to his bank, especially if it's for the company's first loan. His account officer will use the information to prepare an internal loan request for approval by the bank's credit committee or for a more senior officer. For this reason, the company's proposal should be complete and error-free. Information in the proposal should be based on the company's business plan.
Update your company's business plan. It will provide background to the loan proposal. Pay special attention to the executive summary, the marketing section and the financial section. There should be no discrepancies between the plan and the proposal.
Address the loan proposal to your account officer at the bank. Compose it in the form of a business letter from your company to the bank. Use your company's letterhead stationery. Submit supporting material such as financial statements and the updated business plan separately. Draw information from your business plan as needed, but don't duplicate the entire plan.
Write the first section heading: "Loan Request." State the dollar amount of your loan request. Assuming that you need to finance equipment for your business, the loan amount will be the amount of the purchase price remaining after your cash down payment of 10 or 20 percent. State the repayment term of, for example, two years or more. If you want monthly payments of principal and interest, include that information. Collateral for the loan will be the title to the equipment. Don't mention interest rate, fees or personal guarantees at this time; let the bank cover that in its response.
Enter the next heading as "Purpose." Here you can inform the bank that you need the loan for the purchase of equipment or another purpose. If the loan is for equipment, write a summary of what the equipment is and what it does. Tell the bank how the equipment will benefit your business. If you need the equipment by a certain date, let the bank know. Refer the reader to specifications for -- and photographs of -- the equipment, which can be attached to the proposal letter with other supporting material. If you won't be financing the purchase of equipment, tell the bank how you'll deploy the funds in your business.
Discuss the company's products or services and sales strategy in the next section, named "Marketing." Give a brief overview of your market area and your competitors.
Prepare the "Financial" section. Include balance sheets, income statements and cash flow statements for the past two or three years, if available, and projected income statements and cash flow statements for the duration of the requested loan. The cash flow projections should show enough cash flow to service the loan. Include the company's federal tax returns for the past two or three years, if available, and current personal financial statements for the company's owners.
Add supporting material to the package. If the loan is for the acquisition of equipment, include relevant information. Add your updated business plan, the financial statements, tax returns and other material you think will enhance the proposal.
Sign the loan proposal in your capacity as president or chief executive of the company. Assemble the package -- the proposal letter and the supporting material -- and send it to your account officer at the bank.
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