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