How to Apply for a Business Loan

If you are looking to open, or expand, an existing business, you will need to apply for a business loan. When applying, you will need to have documentation to accompany your loan application. Some of the documentation you will need to present to the bank is a business proposal, potential financial growth, and a repayment plan as well as any required documents requested from the bank.

Business Proposal

Prior to submitting your application for a business loan, you will need to develop a plan. The plan should address the project you are trying to fund. It should demonstrate to the lender that you understand the market and products that you are offer. Give the lender some insight as to what you are trying to do. A basic business proposal will include a summary (which provides a high-level view of what is contained in the proposal, financial analysis, competition analysis, forecast of potential growth and a contingency plan.

These items provide the lender with a sense of how well you know your business. It is important that all these areas be outlined in detail in the business proposal. Be sure to provide enough information. When a lender reads your proposal, you want them to have a clear picture of how you will use this loan, not only to raise capital to pay them back, but to be a profitable venture.

Financial Documentation

To accompany your business proposal, you will want to develop a financial analysis. The financial analysis should detail the budget on the project, financial projections, market trends and equity. These items demonstrate to the lender the viability of your business. Lenders want to invest their money into a business that will be profitable. The more research you present to them about your business and its potential profitability, the better your chances are at being approved. If you are stepping into a market that has not been tested or is very new, use comparable industries to demonstrate the potential growth.

In addition to your financial analysis, be prepared to provide copies of your personal credit record and tax returns. Lenders like to understand your credit history and how you have handled the credit extended to you.

Repayment Plan

Last, identify your repayment plan. You should factor in interest rate and repayment time. Your forecast will give the lender an idea of the timeframe in which to be repaid. Include any collateral that you plan to use as a way to guarantee repayment. Using collateral will help to secure the loan and demonstrate to the lender that there is a way for them to recoup their funding should you default.

Finally, discuss your exit strategy. An exit strategy is important to address. It shows future thinking. While the exit strategy may be based only on future predictions, it still demonstrates that you understand that change is a part of business and that you are prepared to handle situations that may arise.

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