Business Loan

The U.S. Government works in conjunction with intermediaries, banks, and other lending institutions to supply loans and venture capital financing to businesses that cannot acquire financing from traditional sources of lending. These loans can be used for most business purposes. For example:

• business start-up
• business expansion
• purchase of equipment
• working capital
• inventory
• acquisition of real estate

The Small Business Association is responsible for these loans and can guarantee up to $750,000 of a private-sector loan. The applicant and the lender negotiate interest rates.

How to Apply for a Business Loan

Applications for business loans entail written loan proposals. The proposal should start with a cover letter or executive summary, which covers the following topics:

• Who are you?
• What is your business background?
• What is the nature of your business?
• What is the purpose of your loan request?
• What is the amount of your loan request?
• What are your requested terms of repayment?
• How will the loan funds benefit your business?
• How will you repay the loan?

Avoid elaborate, intricate language at this point in the process. For these early stages, remain straightforward. Communicate the basic information. Otherwise, no one will want to exert the energy to read the rest of your application.

Now, start writing your proposal. Many different proposal formats are out there; ask your commercial lender which format will best suit your purposes. Then, let the writing begin!

As you write your proposal, follow these tips:

• Incorporate industry-specific information, such as current trends. Commercial lenders handle loans for all types of situations. You should not assume they know anything at all about the industry you’re in. Make sure they understand how your business works.

• Incorporate a written description of your business, including the following details:

• Type of organization
• Date of information
• Location
• Product or service
• Brief history
• Proposed Future Operation
• Competition
• Customers
• Suppliers

• Don’t forget the competition. Others will compete for your loans, so focus on what is unique about your business.

Management Experience:

Include resumes of all owners and top level management members.

Personal Financial Statements:

The SBA wants to see the submissions of financial statements for all principal owners and guarantors. Principal owners own a minimum of 20% of the business. Financial statements should be no older than 90 days. As well, include a copy of last year’s federal income tax return with the financial statement. Make sure you are ready to explain trends in your financial statements. You need to know the “story” behind any sudden drops—or sudden gains. You may even consider explaining such trends in an introductory paragraph before your financial statements.

Loan Repayment:

Include a short written statement explaining how your business plans to repay the loan. Include repayment sources and time requirements. Also include cash-flow schedules, budgets, and other appropriate information to back up your claim. In the end, loan repayment will be negotiated between you and the lender; however, prospective lenders will still want evidence that you are ready to think in terms of repayment.

Projections:

Include a projection of future operations for at least one year or until positive cash flow can be shown. Include earnings, expenses, and reasoning for your projections. Write up these projections in profit and loss format. If your estimates stray from trend or industry standards, be prepared to explain. Also, provide justifications for your projections. Expect questions from the prospective lender about worst-case scenarios; for example, what if some of your projections fail to come true?

Collateral:

Few financial institutions will provide loans that are not collateral-based, so you must provide a list of assets to be held as collateral, including real property. All loans should have at least two identifiable sources of repayment. Source One is ordinarily cash flow generated from business profit. Source Two is typically collateral guaranteed to secure the loan.

For Existing Businesses Only:

Provide financial statements for the last three years or more, plus a current dated statement from within the past 90 days. Include:

• balance sheets
• profit and loss statements
• reconciliation of net worth
• information about accounts payable and accounts receivables
• a schedule of term debt

If you’re including other balance sheets, be sure to explain what they are, and their significance.

For Proposed Businesses Only:

Provide a pro-forma balance sheet detailing the sources and uses of:

• equity
• borrowed funds

If Applicable, Also Include the Following:

• Lease (copies of proposal)
• Franchise Agreement
• Purchase Agreement
• Articles of Incorporation
• Plans, Specifications
• Copies of Licenses
• Letters of Reference
• Letters of Intent
• Contracts
• Partnership Agreement
• Literature detailing your products or services.
• Letters from suppliers, satisfied customers and other business references.