| Some time in your life, you will probably need to apply | | | | Articles of Incorporation |
| for a loan. However, like most things, there is a wrong | | | | Plans, Specifications |
| way and a right way to go about it. Here are some | | | | Copies of Licenses |
| key tips on getting the loan of your choice. | | | | Letters of Reference |
| When applying for a loan, you must prepare a written | | | | Letters of Intent |
| loan proposal. Make your best presentation in the initial | | | | Contracts |
| loan proposal and application; you may not get a | | | | Partnership Agreement |
| second opportunity. | | | | Collateral: List real property and other assets to be |
| Always begin your proposal with a cover letter or | | | | held as collateral. Few financial institutions will provide |
| executive summary. You will need to include a variety | | | | non-collateral based loans. All loans should have at |
| of information. Clearly and briefly explain who you are, | | | | least two identifiable sources of repayment. The first |
| your business background, the nature of your business, | | | | source is ordinarily cash flow generated from |
| the amount and purpose of your loan request, your | | | | profitable operations of the business. The second |
| requested terms of repayment, how the funds will | | | | source is usually collateral pledged to secure the loan. |
| benefit your business, and how you will repay the loan. | | | | The 5 C's of Credit |
| Keep this cover page simple and direct. | | | | Your bank is in business to make money. |
| Many different loan proposal formats are possible. You | | | | Consequently, when a bank lends money it wants to |
| may want to contact your lender to determine which | | | | ensure that it will be paid back. The bank must |
| format is best for you. When writing your proposal, | | | | consider the 5 "C's" of Credit each time it makes a |
| don't assume the reader is familiar with your industry | | | | loan. By knowing about the 5 C's of Credit, you have a |
| or your individual business. Always include | | | | much better chance of obtaining a loan. |
| industry-specific details so your reader can understand | | | | Capacity to repay is the most critical of the five |
| how your particular business is run and what industry | | | | factors. The prospective lender will want to know |
| trends affect it. | | | | exactly how you intend to repay the loan. The lender |
| Description of Business: | | | | will consider the cash flow from the business, the |
| Provide a written description of your business, including | | | | timing of the repayment, and the probability of |
| the following information: | | | | successful repayment of the loan. Payment history on |
| * Type of organization | | | | existing credit relationships - personal and commercial - |
| * Brief history | | | | is considered an indicator of future payment |
| * Date of information | | | | performance. Prospective lenders also will want to |
| * Location | | | | know about your contingent sources of repayment. |
| * Product or service | | | | Capital is the money you personally have invested in |
| * Competition | | | | the business and is an indication of how much you will |
| * Proposed Future Operation | | | | lose should the business fail. Prospective lenders and |
| * Customers | | | | investors will expect you to contribute your own |
| * Suppliers | | | | assets and to undertake personal financial risk to |
| Management Experience: Resumes of each owner | | | | establish the business before asking them to commit |
| and key management members. | | | | any funding. If you have a significant personal |
| Personal Financial Statements: SBA requires financial | | | | investment in the business you are more likely to do |
| statements for all principal owners (20% or more) and | | | | everything in your power to make the business |
| guarantors. Financial statements should not be older | | | | successful. |
| than 90 days. Make certain that you attach a copy of | | | | Collateral or guarantees are additional forms of |
| last year's federal income tax return to the financial | | | | security you can provide the lender. If the business |
| statement. | | | | cannot repay its loan, the bank wants to know there is |
| Loan Repayment: Provide a brief written statement | | | | a second source of repayment. Assets such as |
| indicating how the loan will be repaid, including | | | | equipment, buildings, accounts receivable, and in some |
| repayment sources and time requirements. Cash-flow | | | | cases, inventory, are considered possible sources of |
| schedules, budgets, and other appropriate information | | | | repayment if they are sold by the bank for cash. Both |
| should support this statement. | | | | business and personal assets can be sources of |
| Existing Business: Provide financial statements for at | | | | collateral for a loan. A guarantee, on the other hand, is |
| least the last three years, plus a current dated | | | | just that - someone else signs a guarantee document |
| statement (no older than 90 days) including balance | | | | promising to repay the loan if you can't. Some lenders |
| sheets, profit & loss statements, and a reconciliation of | | | | may require such a guarantee in addition to collateral |
| net worth. Aging of accounts payable and accounts | | | | as security for a loan. |
| receivables should be included, as well as a schedule | | | | Conditions focus on the intended purpose of the loan. |
| of term debt. Other balance sheet items of significant | | | | Will the money be used for working capital, additional |
| value contained in the most recent statement should | | | | equipment, or inventory? The lender will also consider |
| be explained. | | | | the local economic climate and conditions both within |
| Proposed Business: Provide a pro-forma balance | | | | your industry and in other industries that could affect |
| sheet reflecting sources and uses of both equity and | | | | your business. |
| borrowed funds. | | | | Character is the personal impression you make on the |
| Projections: Provide a projection of future operations | | | | potential lender or investor. The lender decide |
| for at least one year or until positive cash flow can be | | | | subjectively whether or not you are sufficiently |
| shown. Include earnings, expenses, and reasoning for | | | | trustworthy to repay the loan or generate a return on |
| these estimates. The projections should be in profit & | | | | funds invested in your company. Your educational |
| loss format. Explain assumptions used if different from | | | | background and experience in business and in your |
| trend or industry standards and support your projected | | | | industry will be reviewed. The quality of your |
| figures with clear, documentable explanations. | | | | references and the background and experience of |
| You will also need to submit other Items As They | | | | your employees will also be considered. |
| Apply: | | | | Now that you know these simple tips on getting a loan, |
| Lease (copies of proposal) | | | | you should have a much better chance in obtaining the |
| Franchise Agreement | | | | loan of your choice. The key to finance is to stay |
| Purchase Agreement | | | | informed. |