Writing a Proposal for a Small Business Loan

A Home Business Article Contributed by Sharon Hill

The First Step in Getting Your Small Business Loan

With a small business loan, as with anything else, the first step in getting what you need from someone else is to ask for it. In reference to a small business loan, this step is called a small business loan proposal.

This proposal is your opportunity to put your best business foot forward - to convince potential lenders that, in the case of a proposed new business, your idea is sound, your knowledge and expertise adequate to the task of growing your business and that you can succeed if you have adequate capital. In the case of a business that's already established you will need to show that you are solvent, that there is adequate potential for growth and that the purpose of your loan request is a necessary element of your expansion.

The How-To's of Writing Your Small Business Loan Proposal

The first element of your proposal is a cover letter - a brief (one page is ideal) overview of your business, including history and products or services, as well as pertinent elements of your biography - and the bios of any other owners. In this cover letter you will also include the elements of the loan request - the amount of money you are requesting to be loaned to you and the uses to which it will be put.

A good journalism rule would apply to your small business loan proposal - tell them what you're going to tell them, then tell them, then tell them what you told them. In other words, you've already stated in your cover letter the basics of who you are and what you are asking. Now, let's get to the nitty gritty. First, you'll want to include the contact information, much like a press release format. You'll need to include company name, address, phone, fax, email and URL (if you have a web site.)

If you have no web site than your loan proposal will include web site hosting, design and maintenance as part of the loan's purpose, correct? A site is crucial to a small business in today's world. In fact, it's one way of creating the impression, if you wish, that your business is not small.

You now list your name, the names of any other interested parties - co-owners, limited partners, crucial employees (may not all be managerial level - some, though subordinate, may have crucial skills that your potential lender need to see available to know that your business is on a solid foundation of expertise.)

Show the potential lender how you came up with the money figure for the loan request. This should be very detailed, showing not only the breakdown of the expense of each element (supply, consultancy, payroll, equipment, advertising, and so forth) but the need for each element to accomplish your proposed venture.

Tell them what your business is all about - how it came into being, what you've done so far (if you're new then your business plan is an even more critical document to include), why your business is unique, why yours and other principals qualifications are ideal for growing this business, and why you're going to succeed.

Forms, Forms and More Forms for Your Small Business Loan

If yours is an established business you'll need to include financial statements (balance sheet and income statements) for the last 3 years, or if you're company has been around fewer than that for each year you've been in business. If you're asking for a loan for a business that is new you'll need to create projected financial statements - what you perceive will be the financial results of your business venture. You'll be comparing expenses to gross revenue.

You'll also want to show personal finance information for yourself and any partners in this business. Make sure that if you have anything to offer as collateral you let the potential lender know this.

Now summarize, very briefly, the elements of your proposal (remember the last part of that journalism rule - tell them what you told them.) As with any other formal document you submit to others, complete the business proposal, let others review it in confidence, then set it aside for twenty four hours before reviewing it again. You'll be surprised at the errors you'll find after a next day re-read.