It’s essentially a short version of your financial and operational history. Fortunately, you don’t have to be a professional writer to put together a thorough business loan proposal that increases your chances of getting approved. If you’re wondering how to write the best business loan proposal, keep reading.
What is a Business Loan Proposal?
A business loan proposal is a written document that can help you show your knowledge and passion for your business to a lender. It can also prove that your business is in good financial shape. With a business loan proposal, a lender will receive a clear picture of your cash flow and revenue projections.
This document may make it easier for them to determine whether or not you are an attractive borrower that can repay a loan on time. Therefore, it’s important that you write your proposal in a way that highlights your strengths and positions you as a business with a lot of potential.
What to Include in Your Small Business Loan Proposal
It can be tempting to write a business loan proposal that's lengthy and filled with as many details about your operations and future plans as possible. But the truth is lenders don’t have time to read pages upon pages of information. Ideally, you’d keep your proposal to several pages and use clear, easy-to-understand language rather than industry-specific jargon or acronyms that lenders may not understand. Also, be sure to include the following information.
1. Basic Details About Your Business
Begin your small business loan proposal with an executive summary of who you are and how much funding you need. Then, state your business name, structure (LLC, S-corp, sole proprietor, etc.), time in business, current annual revenue, and current number of employees.
2. Description of Your Business Model
Briefly describe what types of products and services your business offers. Also, dive into your target audience, industry, and competitors. In this section, the lender should know exactly how your business makes money.
3. Purpose of Your Loan
Most lenders will want to know
what you plan to do with the loan. State whether you’d like to cover day-to-day expenses or purchase commercial property, inventory, or equipment. Make it obvious that the proceeds will help you run or grow your business.
4. Proof You Can Pay Back Your Loan
A lender wants to know that you’re a responsible borrower who will pay them back. That’s why it’s vital to summarize your cash flow projects, which you can figure out with last year’s
cash flow reports, profit and loss statements, and your current balance sheet. Demonstrate how you’ll fit the new repayment into your current budget.
5. Existing Debts
Some lenders, especially those that offer SBA loans would like to know if you have any other outstanding debts. To show them that you're aware of your payments, create a list of who you owe money to and how much you owe them. You may also want to include each individual or company’s address and contact information.
6. Personal Financial Background
In many cases, lenders may want to review both your personal and business finances.
Before you submit your loan application, be sure to review your personal financial statements in addition to your business documents. Lenders may want to review the financial details of any small business owners, partners, and management team members. It’s a good idea to provide each individual’s name, address, and contact details as well as your credit history, tax returns, and bank statements.
7. Digital Assets
It’s highly likely that you have a website for your business, in addition to business profiles on platforms like Facebook and Instagram. Your business may also be listed on review sites like Google and Yelp.
When writing your loan proposal, list all of these digital assets so that the lender can review them and learn more about your business.
Once you’ve written your
small business loan proposal, don’t forget to attach supporting documents that help prove your story. These may include your business plan, balance sheet, cash flow statement, profit and loss statement, and financial projections.
4 Tips for Writing a Small Business Loan Proposal
To ensure your proposal is well-written and increases your chances of getting approved for a business loan, follow these tips.
1. Find a Business Proposal Template
Fortunately, there are plenty of business loan proposal templates that can help you get started. Perform a quick internet search and you’re sure to find a template that you can use.
2. Be Concise
Remember, business lenders are busy evaluating loan requests and won’t read your proposal if it’s too long. As stated, a good rule of thumb is three to five pages.
3. Check for Grammar and Spelling Errors
There’s nothing worse than submitting a business loan proposal and later discovering typos. Triple check the document for grammar and spelling errors.
4. Read It Out Loud
It can be easier to catch mistakes when you read your business loan proposal out loud. When you finish your proposal, read it out loud slowly and in front of others who may catch an error you missed.
Conclusion: An Effective Business Loan Proposal is Key
A well-written business loan proposal is the first step toward receiving a loan offer. In most cases, this document will be the first contact a lender will have with your business. Therefore, you should put in the time and effort to craft a persuasive, positive proposal that convinces the lender to lend you money.