When you’re planning your home business and you need financial help, you’ll
need to know how to apply in the first place. Now that you know the where,
let’s talk about the how.
This is your chance to show your professionalism, so you’ll want to take
some time in preparing this. Start with a professional looking cover letter for
your loan proposal.
Yes, you have to write a loan proposal.
Think of this as your business plan for your finances. This is a statement
indicating why you need the indicated funds. The cover letter will include a
brief summary of your purpose as well as your overall goals, plus give a
specific number as to the amount of money you will need to get started.
A good thing to note is that you loan proposal should not take for granted
that your lender understands or has had dealings with others in your line of
work. Make sure to be clear in your proposal to be sure that there is
complete understanding between the two of you.
Create a map of how your specific industry is run and what the lender can
expect in the future for it. This is the time to highlight the strong points of
your business and its need in the market.
Next, you’ll want to write an overall description of your business including
your resume and your experience. You will want to include a plan for how
you see the repayment schedule proceeding as well as the profits you expect
to receive over the beginning months and into the future of growth.
You also want to create a sheet of where you project the growth will go over
the life of the business. This may include sample cash flow sheets as well as
previous financial records for old business dealings that support your
You will also need to include any legal documents that you have to support
your business. This can include leases and licenses as well as any contracts
that have been drawn up in support.
Think of this as your final exam for your financial fitness. You need to have
all of the paperwork before you get there. It looks more professional that
way and again, it shows the thought that you have put into the entire
business as opposed to just asking for money for no apparent reason.
CREDIT AND WHAT THE LENDERS LOOK AT
You’ve certainly realized the importance of having good credit in terms of
financing your home or your car. You are more apt to get lower interest
rates as well as better repayment terms. But how does your credit affect
your business dealings?
Let’s talk about what your intended lenders look at when they’re processing
your loan proposal. First of all, they are going to look at your collateral. For
those that are unsure of this term, these are the assets that you have in
order to secure your loan. If you can not repay your loan, these will be the
things that the bank can take in exchange. Another route for this guarantee
is a contract from someone that says that they will pay off the loan should
your business not be able to.
The bank is looking for your capacity to pay off your loan. Does your
business plan sound thorough and reasonable? Have you done enough
research into your field in order to make qualified decisions and wise
investments? Do you have enough experience to be running the business
that you intend to run? All of these factors play into the probability of
success and thus repayment of your original loan.
Banks also look into what kind of money you already have invested in your
venture. You are expected to be footing part of the bill and only asking for
that which you can not raise yet. These funds can come from your personal
savings, friends and relatives, etc. in order to help fund the start up costs.
What exactly are the conditions of the loan that you are asking for? Banks
are looking to see if you have looked into how you plan to repay the loan,
how much growth you expect and how long the repayment process may
take. The current economy may factor into this section as a bank may be
hesitant to provide funds for an idea that hasn’t seemed to catch on.
And lastly, banks look at you. Yes, your personal professionalism and
determination will play a large factor in determining the outcome of loan
proposal. Are you well prepared for a business on your own? By being
professional in each step along the way, you are showing that you aren’t
afraid to work hard in order to succeed.
There you have it. These are the main things that a bank of lender will look
at in order to determine the status of your loan for your small business. it’s
time to get yourself ready to present your case and ready to start your new