Loan Proposal Basics: What your banker needs to say "Yes!"

So you want to get financing to grow your business. What does your bank want from you in your loan proposal? Answers to the five key borrowing questions:

1. How much do you need?
2. What will you do with it?
3. When will you pay it back?
4. How will you pay it back?
5. What if something goes wrong?

The proposal is presented in an outline format. Each section, if applicable, should be included.

• Purpose of loan. Your company is seeking to: (purpose of loan).
• Repayment. Repayment on long-term financing will come from continuing net profits; of a seasonal credit line from liquidation of inventory and receivables.
• Corporate data. Name, address, phone, date established, and form of organization.
• Description of your business. Location, type of business, typical customer, estimated sales for 2018, primary focus, payment terms, distribution channels, type of premises, etc.
• Product. A narrative discussion of: 1) the business performed as indicated by the NAICS, including principal products sold or services rendered; 2) general development of the products and/or services in the past 5 years; 3) relative importance of each principal product or service to sales and profits; and 4) a tentative 5-year plan of the objectives and goals of the company, including anticipated revenues and earnings.
• Employment. Include: 1) total number of employees at application, or expected employment for a new venture; 2) description of the critical skills required in the business and their availability in the present work force or local labor market; and 3) a description of labor relations (including any previous difficulties) and a copy of any current union contract.
• Source of supply. Include: 1) a brief description of the significant materials and supplies employed or to be employed; 2) names of major suppliers, including disclosures of any single or limited sources of essential materials; and 3) adequacy of available storage and materials handling facilities.
• Management. Include: 1) detailed biographies of all officers, directors, owners, and key personnel, including degree of ownership; 2) any contract or proposed contract between the company and any member of management and/or outside consultants including name(s) of accountant and/or attorney.
• Marketing and distribution. Narrative discussion of: 1) the type, number, location and financial strength of customers and potential customers indicating the percentage of gross revenue they account for; 2) a marketing survey and/or economic feasibility study commensurate with the size of the company and proposed investment; 3) a brief description of the actual or proposed terms of payment by customers if other than cash; 4) how the products or services are now (or will be) provided to customers, including physical distribution facilities; 5) a description of the techniques presently used (or to be used) to create demand for the products or services; and 6) any significant seasonal aspects pertaining to marketing the products or services.
• Competition. A descriptive summary of the competition.
• Facilities. Include: 1) a detailed description of the real and physical property and equipment (age, condition, insurance coverage, and adaptability to the principal business); 2) copies of agreements pertaining to any encumbrances on property or equipment owned, or lease or rental agreements on non-owned property; 3) the same information for property proposed to be used by new ventures; and 4) copies of any franchise agreement, distributorship, dealership, royalty contract, or similar contract with other companies.
• References. Include: 1) a minimum of one banking, one business, and three personal references for each member of management and each principal owner (also list the company’s key advisors such as CPA, attorney, etc.); 2) a credit report on the principals and company; and 3) a discussion of the company’s reputation from a sampling of suppliers and customers on the company’s reliability, creditworthiness, fair business practices, etc.
• Financial information. Include: 1) historical data (when available) such as balance sheets and P&L statements (preferably from an independent public accountant) for a minimum of the last 3 fiscal years or from inception, including the latest interim period, and your latest aging of accounts receivable and payable; 2) a pro forma balance sheet that includes the effect of the financing, supplemented in the case of new ventures with a description of the source of the original funds and assets; 3) cash flow (a detailed projection by month of anticipated revenues and expenses and a schedule of cash receipts and disbursements for a minimum of 12 months); 4) personal financial statements for the principals; 5) use of proceeds (reasons for the request for funds and a description of the proposed uses, including timing); 6) salaries and benefits (schedule of past, current, and proposed salaries and other benefits of each member of management and/or owners, including bonuses, free arrangements, profit sharing, stock options, etc.); 7) statement of the enterprise’s capacity, both current and subsequent to the financing, including the current and expected rate of utilization of such capacity and current backlog of orders; and 8) a description of all outstanding debt or commitments for funds, including the original balance, current balance, interest rate, and amortization schedule, and a copy of the instrument.

This loan proposal, completed and presented in this format, will go a long way toward getting your banker to Yes.

 Rod Bristol is executive vice president at Profit Mastery. For more than 30 years, franchisors and franchisees have improved their financial performance and unit profitability by following the Profit Mastery process. Learn more at profitmastery.net or call 800-488-3520. Editor’s Note: Rod Bristol recently left Profit Mastery and is now business development manager at Fastsigns International.