For most businesses, a loan is the difference between opening or expanding and seeing a dream go unrealized. Unless you’re independently wealthy, or have a rich uncle who believes in you, you’re going to need a loan for expansion, for payroll, for inventory, for start-up costs.
There is a right way and a whole lot of wrong ways to apply for a small business loan. Follow this guide and get it right the first time.
No One Formula
The regulations and protocols of applying for a loan are different from lender to lender, state to state. Check first with your financial institution and regional authorities. Generally, you’ll need to do the following.
Executive Summary
Start with a brief, concise, well-written explanation of who you are, your background, your business experience, what you do, the amount you’d like to borrow, the frequency and conditions that you’d like to repay, how you plan to use the money, and how you plan to pay it back.
Don’t presume the lender knows about the particulars of your business or industry. Be specific and avoid jargon or industry speak. Your restaurant doesn’t need $11,000 to cover operational costs that will allow you to bring in more money. Your restaurant needs to borrow $11,000 to purchase a rotisserie oven and prep station that will allow you to radically improve your menu and bring in new customers.
Lenders will look at any loan application with a skeptical eye. Don’t give them any reason to turn you down.
Profile
Write a brief, preferably bulleted profile of your business: what you do, where you’re located, what you make or sell or what service you provide, how long you’ve been in business, a summary of recent annual sales, how many people work for you, and a list of your suppliers, vendors, and direct competitors.
Top Employees
Provide a list and resume of your most important executives, managers, and supervisors.
Personal Finances
Provide a brief overview of your personal finances, listing any debt, open credit lines, and relationships with other lenders.
Business Finances
Provide a complete portrait of your business’s finances from at least the last three years.
Collateral
Provide a list of tangible items you own that equal or exceed the amount of money you intend to borrow.
A loan can make or break a business – get it right the first time.
Repayment Summary
Explain when, how often, and in what increments you would ideally like to repay the loan.
Business Plan
A business plan should describe who you are, what you do, and specific ways you intend to be profitable in the immediate future.
Business Documents
Provide a copy of any leases, articles of incorporation, licenses, and contracts.
When applying for a loan, you must be thorough, honest, exhaustive, and concise. Before submitting your application, ask yourself, would you loan you money?
Andrew Lisa is a freelance writer living in Los Angeles. He writes about small business and money management.
