Preparing an effective and well-documented application is the first step to getting a commercial loan from your bank.
Your loan file is often the first item that the banker has to gauge your small business. You must present your business in the best possible way.
The objective is to persuade the banker that you are ready and able to ensure the success of your business and to repay the loan.
Your business plan plays a key role
The business plan is the key element of loan files for small businesses. Take the time necessary to properly prepare it, ensuring that it covers the following:
- Summary - This section provides a concise overview of your business, which it describes briefly, along with its industry and competitive advantage. It should also specify the business need or project to be funded and the amount required.
- Company description - In the body of your business plan, you should describe in more detail your company's history, the nature of its business and its strategy.
- The experience of the management team - Show the skills, experience, and qualifications of each member of the management team. Your banker must see that they have what it takes to complete your project.
- Key Financial Data - This section shows the financial strength of your business. Provide financial statements and forecasts for the next two to three years. Your banker will examine this information closely to get an idea of your journey and your ability to repay the loan. As in all other sections of your loan proposal, be totally honest and transparent.
- Marketing plan - Provide a marketing plan to answer these key questions: Is there an established market for your product or service? Who are your competitors and what are their strengths and weaknesses? What is your customer profile? What is your main competitive advantage?
- Production Plan - Your banker will want to be sure that you have the operational capacity to support the projected sales.
- Human Resources Management - Demonstrate that your company has the ability to recruit, retain and train the right people to advance your business venture.
You should support your business loan application with documents that support and explain your plan and enhance its credibility, including:
- Market research or other research that corroborates your findings and forecasts;
- Documents supporting financial data (eg, copies of leases, estimates of subcontractors, letters of credit );
- Customer testimonials;
- Reports on your company in the media.
The purpose of the supporting documents is to show that your application is based on facts.
Tips for Writing an Effective Loan Application
- Use simple, familiar language. Avoid technical terms and acronyms. Your request should be clear well structured and easy to read.
- Do not forget that your file aims to present your company favorably. Enhance yourself!
- Use all sections of your file to show why your project will be successful. Demonstrate that you have considered multiple scenarios and designed contingency plans.
- The picture counts. Consider working with a professional who will help you design the document. If editing is not your strength, have recourse to a professional designer or editor.
For more tips on how to write a business plan and how to approach a banker, check out these free BDC tools: business plan template, how to get a business loan, ratios calculators.