When a startup submits a loan proposal at a bank, the quality of that proposal is the key factor in them receiving finance. If a business has some existing facilities, and needs them renewed, the loan proposal and its contents are equally important. This is exactly why it is crucial to know exactly how a business proposal for a bank loan should be created.
The proposal should deliver a very good understanding of your business and address all the credit risks satisfactorily. The structure that has been set-out below is one that can be applied to a majority of loan proposals. However, dependent on the situation, it will be necessary for you change the sequence in the flow.
You may also have to add certain sections based on issues that are specific to your business. The main objective while writing the content under every heading is to methodically build a well-argued and detailed financing case. This has to be done via a critical assessment of your business. During this process the questions that you should constantly be asking yourself are- What, Why & How? Let's take a look at all the factors that you should be paying attention to while you are drawing out this proposal.
First, you will have to provide a brief-outline of the transaction you are proposing. Is it a completely new proposal, a refinance or an upgrade/ change in facilities and the reasons for the requirement
Make note of the outline of your business and its history. If the financer already knows the business you deal in, you will have to provide an update on it. All this information should be done in the "Terms Sheet" format
#3 Corporate Structure/Ownership
If there are more than one entity in the group, include a detailed diagram of the corporate structure. The important factors are the legal-relationships between the entities in the group. These become vital considerations when covenants and security are being structured.
Always include a diagram of the management-structure as well as short summaries of the capabilities & experience of key management
#5 Overview of Project/Business
This section is meant to provide the financer a detailed understanding of your business and you should always include a SWOT analysis. This overview may have numerous sections/sub-sections based on the business. The issues that could be addressed in this section are major customers, major suppliers and competitors.
It should also have an operation overview and a financial analysis which should include sub-sections such as critical analysis and forecasts. All of these should be referenced as appendices or numbered attachments. Incorporating tabular summaries of all the significant items can also be useful.
You should also identify a minimum of 2 sources of repayment. It is important to note that refinancing isn't considered to be a valid repayment source from the perspective of a credit repayment. In addition, you should include a critical assessment with quality & adequacy of security components. This could either be a standalone section or a sub-section, based on the circumstances. You will also have to assess the quality of the guarantees.
#6 Summary & Recommendation
As long as you include appropriate analysis in the proposal; it should be possible for you to clearly justify how safe the proposed exposure is for the financer. This is the section where you can make statements about a person's character (if you need to). It is also important to understand that when you make any comments about the integrity of any of the key people, do so only if you really know them.
Worth the Effort
You will know whether your loan proposal is effective or not if the financer asks for a soft-copy. This allows them to "cut & paste" the information into their internal credit-submission forms. In addition to boosting the chances of your proposal being accepted, a well-planned loan proposal also significantly shortens the turnaround time. In addition, there will be fewer requests for protracted piecemeal requests. It's true that putting together an effective loan proposal for a bank loan is quite an effort- but it's definitely worth it!
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About the Author
Ben Fewtrell is a sought-after Business Coach, Keynote Speaker and trainer who has featured in Virgin’s Inflight Magazine and Entertainment Portal, SKY Business and “Secrets of Top Business Builders Exposed”. He is also the host of the popular Business Brain Food Podcast where he interviews leading experts on anything and everything business.