How to write a business loan proposal – Lay man approach
Every enterprise wants to have bank finance to supplement their fixed or working capital requirement. Normally for any business, debt to owners capital need to be 2:1 with some exceptions for some industries like software. Debts can be arranged in different ways including bonds, fixed deposits, bank loans etc.
For bank loans, different banks have their own format for loan payment.
In addition to standard loan documents, banker expects to see a written proposal when someone applies for a business loan. This is finance chance to highlight the most exciting and promising aspects of the business and to prove to your lender that your company is a prime candidate for a loan.
Various steps are to be taken for this:
Submit a cover letter with your proposal. This should be a brief introduction to your firm/company, the size of the loan requested and the purpose of the loan.
Begin your proposal with general information, including the company name and address, names of the Directors, the purpose of the loan, the exact amount of money needed and detailed plans for what will be done with the money.
Describe your business in detail. Include information on prior and projected performance, unique aspects of your business .
Provide complete market information. Identify your competition and explain how your business plans for future growth . Submit details on your current customer base.
Prepare management profiles for all owners and key employees. Highlight total number of employees, Key employees ‘qualifications.
Submit complete information concerning your last three years of operations like balance sheet, profit and loss account, cash flow and fund flow. Also provide projections for next 3 to 5 years based on estimated growth. If it is a short term loan, only one year data is sufficient. If it is a long term loan, then the projection should cover upto the period of likely repayment If you’re just starting out, provide projected balance sheets and income statements. Also one should include personal financial statements from all the owners and information on any collateral that will be pledged as security for the loan.
Submit your proposal with each copy of the loan package you are required to return with your rate of interest demand .Now banks cannot lend below base rate and hence one should insist and try to get at least base rate from bank for loan. Remember to keep a copy for yourself. Overseas bank rates are cheaper. So External Commercial borrowing route also should be explored for which company should follow certain criteria set up by RBI.
C.R. Venkata Ramani