Financial institutions have extensive experience evaluating existing companies to determine if they're good candidates for commercial loans.
Ideal candidates for business loans typically:
- generate sufficient cash flow to cover loan payments
- have a solid, long-term track record of meeting financial obligations
- have a good credit history
- have financial reserves or collateral to weather unexpected downturns or setbacks
Regardless of your company's history, when seeking a loan, the goal is to present the best possible business case in the form of a loan request. A well-designed, well-written request shows bankers that your business is a sound investment that generates solid, stable returns.
When preparing a loan request, gather information to answer the following questions:
- How much money does your company need?
- How will your company use the loan?
- How will the business repay the loan?
- Why is your company a reliable candidate for a loan?
- What will your company do if it's unable to repay the loan?
When you're done gathering, include the following elements in your loan request:
- Executive Summary. Briefly describe your business, your market and how the loan will be used to help the company succeed.
- Business Summary. Describe the history of the business, current activity and results.
- Management Profile(s). Lenders want to know to whom they'll be lending money. Describe your experience, qualifications, credentials and skills. Include resume(s). Establish your credibility and track record as a business owner and as a good corporate citizen.
- Financial Statements. Include business and personal financial statements. Some lenders may also require personal tax returns for the previous one to three years. Be prepared to provide profit and loss statements, balance sheets and other financial history documentation.
- Financial Projections. A loan request typically includes earnings projections for the coming two to three years. Highlight current income, cash flow and growth initiatives.
- Amount of Loan. How much money do you need? Include quotes for equipment, supplies, building costs, R&D expenses and so on.
- Purpose of Loan. In detail, describe how you'll use borrowed funds. Include written documentation, cost estimates, expansion proposals and other relevant information.
- Marketing Plan. Detail how you'll grow the company through the use of these funds to generate new customers.
- Loan Repayment Plan. Describe the terms you hope to receive (interest rate, length of term, etc.). Show how you can make repayment based on sales and cash flow projections.
- Inventory of Collateral. What happens if you can't pay back the loan? If you plan to purchase a building, facilities, or equipment, those items are collateral. You can also use personal possessions for collateral. Having collateral can reduce lender risk and increase chances for loan approval.
Commercial lenders, like your current bank, want to understand your business so they lend with confidence. These lenders will assume some risk, but a well-developed loan request helps them clearly understand the risks they face and improves your chances for loan approval.