Financing a business is a tricky business – especially when you’re first starting out.
You need capital to get your business off the ground. But you don’t have much in the way of assets yet.
You can always apply for credit cards but that may only yield you a small amount of cash.
So, what do you do when you need a significant source of capital? You apply for a business loan.
If you had to obtain financing for your start-up, you may already be familiar with the steps. Banks require a lot of documentation for serious lines of credit. And whether this is your first loan proposal or your fifth, you can always make it better.
But first things first…
Banks want to know you and your business before they approve a loan. It’s all about risk management from their side of things.
A loan proposal is a bit like a cheat sheet about your business’ operational and financial history. If you’ve written a business loan request letter, loan proposals may seem familiar. They’re both cover letters for a small business loan application.
And they’re a chance to show potential lenders who you are and why you think you deserve a loan.
Business loan proposals are mandatory for most lenders. But don’t do it because it’s mandatory documentation. Think of it as a way to plead your case to a lender.
The length and scope of a loan proposal may vary from lender to lender. Also, the business proposal may be lengthier and more in-depth if you’re making a larger loan request.
Ideally, though, each business loan proposal contains the following components:
The title page is relatively self-explanatory. Make sure you have these basics on the page:
- Business name and address
If you’re a company, don’t forget your Australian Company Number (ACN).
The next component of a loan proposal is the summary. Summarise your entire proposal in this section. Include elements like a description of yourself and your business. Also, include how you intend to use the loan to meet company goals.
It’s easier if you save this section for after you’ve completed the entire proposal.
The detail sections make up the bulk of your loan proposal. This is the section that lenders scrutinise when assessing risk.
This section helps lenders understand your business as well as how you plan to use the loan. Included details may be:
- Business structure
- Staff details and management team
- Products and services
- Operations plan
If your business is relatively new, you may use an updated version of a business plan. On the other hand, if you have a history of operation and have prepared an annual plan, you can use that in this section.
Market details are sometimes included in the business details section of a loan proposal. This section includes your key vendors, customers and competition.
You can also include your marketing plan to demonstrate your marketing strategy to potential lenders.
Financial details may be where many small business owners start to sweat. But this is a relatively straightforward process. This section should include a minimum of three years of financials for your business. That means you need to show lenders your business balance sheets and income statements.
The financials should reflect year-end data for past years and the data for the last month of the current year. Additionally, you’ll have to include the relevant federal income tax returns for the same period.
Don’t forget to include projections of operations too!
Make your projections for one year, divided by month.
Lenders also want to know how you plan on paying them back so including a separate cash flow projection is vital. They look at your business’ net cash flow because it reflects your ability to repay the loan.
Sometimes, lenders may also ask business owners to submit personal financial statements. If you need to submit these statements, report your liabilities like:
- Other loans
- Lines of credit
You’ll also have to include pertinent details like agency names, maturities, and terms when reporting liabilities.
This section includes any documents that can support your case. It may include BAS statements and an exit strategy. You can also include cash flow projections here if you didn’t mention it in the details section.
If you have client testimonials or media reports that can help your claim, don’t be shy about showing them off. Include them in this section to help your case.
Here are some extra tips to help you write a great proposal to go with your loan request:
Lenders like seeing facts and figures that support your claim. Make sure you do due diligence and research your business, market, and economy inside and out.
You may use industry jargon all day long, but lenders probably don’t know the jargon. Try to keep your language simple and easy to understand. When in doubt, go with a simple structure to avoid possible confusion.
When you set clear goals for your business, it’s easier to determine if you need this loan. After you set those goals, you can include them in your business proposal.
Every small business owner has to write a business loan proposal at one time or another. But they’re not as straightforward as they seem. If you find that you need help, don’t be afraid to reach out to an expert.
The prospect of writing a loan proposal may seem daunting but it doesn’t have to be.
Take your time and create an outline of all the things you want to convey in your proposal. Research each element and where you want those details.
Create a checklist to make sure that you include everything you need to convey a strong case. And don’t forget that you can always ask for help if you need it.
You have a passion and a need for your business. It’s time to show lenders who you are and what your business is about.
Are you ready to take the next step? Unsecured Finance Australia can help you with your next small business loan. Click here for more information.