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Obtaining a Bank Loan

Approval of your loan request depends on how well you present yourself, your business and your financial needs to a lender, as well as your collateral and equity capital. Remember, lenders want to make loans, but they must make loans they know will be repaid. The best way to improve your chances of obtaining a loan is to prepare a written proposal, commonly referred to as a business plan. A loan proposal generally consists of the following parts:

General Information

Business name, name of principals, SS # for principals, and the address of the business.
Purpose of the loan and the amount of the loan required. Specify long-term or short-term loan.

Business Description

History and nature of the business, age, # of employees, etc.
Ownership structure: LLC, LLP, Corporation, Partnership, etc.

Management Profile

Provide a brief resume for each principal in the business.

Market Information

Clearly define the company's products and market.
Identify competition and explain how you are able to compete.
Profile your customers.

Financial Information

Provide balance sheets and income statements for the past three years. Also, provide at least 2 years worth of tax returns. If you are just starting, provide cash flow projections for the initial 3 years.
Prepare personal financial statements for each principal owner in the business.
List all collateral (and its estimated value) that can be pledged as security for the loan.
List all sources of capital that you have (or will) invest in the business.

Five Questions all Business Lenders Ask:

How much money do you need to start/expand your business and what is the specific purpose of the loan?

The amount of money you need to borrow depends on the purpose for which you need funds. Most businesses need money to provide working capital and/or to purchase inventory, machinery, equipment, furniture, vehicles, real estate, etc. Specify your needs by category and dollar amount. Back up the cost of purchases with written bids and estimates from the supplier or contractor. The purpose for which the funds are to be used is an important factor for the bank in deciding the kind of loan to make.

How much of this money are you contributing?

Most new businesses should be prepared to contribute up to one-third or one-half of the money needed to finance the project. For example, if your business start-up needs $100,000, your investment would be $33,000-$50,000, and the bank loan would be $50,000-$67,000. State where your money is coming from and how you intend to use it. Occasionally, equipment, machinery, and other assets that you now own could be used as a portion of the investment.

How and when will you repay the loan?

This is your chance to convince the lender that your earnings (after expenses) will reasonably assure repayment of the loan. Your tools for this task include market research data, historical operating statements and sales projections.

What qualifications and experiences do you have to operate this business?

Provide a resume and present a business plan. Lenders must be convinced that you have a solid understanding of financial recordkeeping, inventory control, and marketing.

If the business fails, how will the lender recover the money?

Provide a detailed list of collateral showing original costs and depreciation. Borrowing is a matter of convincing the lender that you have the capital needed to succeed, capacity to repay, character and skill to implement the plan, and collateral to serve as backup.

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