When you’re applying for a loan, it’s important to know what you’ll need to provide and what lenders are looking for. Think of your loan application as a sales tool, just like your brochures or ads.
When you put together Things the right combination of facts and figures, your application will sell your lender on the short- and long-term profit potential of lending money to your business.
To do that, the application must convince your lender that you’ll pay back the loan as promised and that your managerial ability will result in a profit-making partnership. Banks are in the money-lending business.
To lend money, they need evidence of security and stability. Also, make sure your application is complete.
When a piece of an application is missing, bankers instantly suspect that either something is being hidden or the applicant doesn’t know their business well enough to pull the information together.
There are some separate items that should be included in every loan application.
The importance of each one varies with the size of your business, your industry, and the amount you’re requesting.
1. Cover sheet
This is the title page of your “book.”
The cover letter is a personal business letter to your banker requesting consideration of your application for a line of credit or an installment loan.
3. Table of
This page makes it easy for your banker to see that all the documents are included.
4. The amount and use of the
This page documents how much you want to borrow and how you’ll use the loan.
5. History and description of your business:
This is often the most difficult to write. The key is to stay with the facts and assume the reader knows nothing about your business.
6. Management team:
Bankers know that it’s people who make things happen. Your management team might consist of every employee if they oversee an important part of your operation, or it might be just you and one key person.
7. Prepare a comprehensive business plan:
You want to show your project is well-researched and low risk—using statistics and data from multiple sources to back your plan.
8. Prepare financial
Your business plan should include financial projections for the next two years. These projections are forecasts of your cash inflows and outlays, total income and balance sheet.
9. Identify your investment and collateral:
Bankers want to see you’re making a financial contribution to show your commitment and reduce the bank’s risk. It’s also important to show that you have the capacity to reinvest in the future if necessary.
10. Credit history:
Bankers consider how you’ve handled your debt in the past to be a clear indication of how you’ll handle it in the future. You’ll look a lot more credible if your discussions with bankers reflect what’s recorded on your credit history.
Be honest and transparent: Ultimately, the best way to gain the trust of your banker is to be transparent about your business goals, the potential pitfalls you’ve identified and the solutions you’re thinking about to overcome these challenges.