You have a fabulous idea for a business, or maybe you and a friend have a great idea you have been planning over time. Or you have a small business that you want to expand. Getting that business off the ground or further along, may require a business loan. But before you head to a bank and ask for money, there are a few things to think about.
You will want to create a business loan proposal based on the items below. Before presenting a proposal, have all of this information prepared and talked over with your business owners.
1. How much money you will need
You can’t go in with just a number for a loan amount. You need paperwork to back it up. If you already started the business, you would want to have your accounts payable, accounts receivable, and all other financial documents. You will be presenting why you need a certain amount of money and where it will be used.
State the amount of money you need and how you determined this amount. This will be showcased with quotes for supplies, equipment, building costs or rent, etc. Explain all the specifics of what the money will be used for.
When you apply for a business loan, you must have hard assets to back up the loan. Banks look at these carefully. If you don’t have assets for the business, the bank will look at personal assets such as house equity. You will want to make sure your credit history is good as well.
This is where you will need to have your social security numbers, details on assets and liabilities such as your home, net worth, vehicles, auto loans, investment accounts, credit card accounts, and mortgages. For businesses with more than one owner or partners, the bank needs financial statements from all owners with significant shares.
3. How your business will use the money
This is where the business plan fits in. Describe the history of your business and summarize what you are currently doing to further the business. Describe your market, your industry, and your customers.
You will want to explain what each main owner has been doing and what they plan to do in the future. Include their management experience and qualifications. You will want to give hard numbers of plans, not just aspirations for your business.
4. How you will repay the loan
You are going to want to write down how specifically you will repay what you owe. Lenders will often request your personal and business credit reports from one of the three major credit bureaus: Equifax, Experian, or TransUnion. You will want to make sure that your credit history is correct and remedy any errors.
You also may need to show insurance against the deaths of one or more of the founders. The fine print in the payout may say that the money will go to the bank to pay off the loan on death.
5. What will you do if your business is unable to repay the loan?
You will want to ask yourself and your business partner this question because the bank will. This is a good time to think about the rates you may want, terms, and repayment schedule. You may plan to repay based on sales or cash flow projections. If you are unable to pay this loan, there needs to be a plan.