Simple Tips On Getting A Loan

Simple Tips On Getting A Loan



Some time in​ your life,​ you​ will probably need to​ apply for a​ loan. However,​ like most things,​ there is​ a​ wrong way and a​ right way to​ go about it. Here are some key tips on​ getting the​ loan of​ your choice.

When applying for a​ loan,​ you​ must prepare a​ written loan proposal. Make your best presentation in​ the​ initial loan proposal and application; you​ may not get a​ second opportunity.

Always begin your proposal with a​ cover letter or​ executive summary. you​ will need to​ include a​ variety of​ information. Clearly and briefly explain who you​ are,​ your business background,​ the​ nature of​ your business,​ the​ amount and purpose of​ your loan request,​ your requested terms of​ repayment,​ how the​ funds will benefit your business,​ and how you​ will repay the​ loan. Keep this cover page simple and direct.

Many different loan proposal formats are possible. you​ may want to​ contact your lender to​ determine which format is​ best for you. When writing your proposal,​ don't assume the​ reader is​ familiar with your industry or​ your individual business. Always include industry-specific details so your reader can understand how your particular business is​ run and what industry trends affect it.

Description of​ Business:

Provide a​ written description of​ your business,​ including the​ following information:

* Type of​ organization
* Brief history
* Date of​ information
* Location
* Product or​ service
* Competition
* Proposed Future Operation
* Customers
* Suppliers

Management Experience: Resumes of​ each owner and key management members.

Personal Financial Statements: SBA requires financial statements for all principal owners (20% or​ more) and guarantors. Financial statements should not be older than 90 days. Make certain that you​ attach a​ copy of​ last year's federal income tax return to​ the​ financial statement.

Loan Repayment: Provide a​ brief written statement indicating how the​ loan will be repaid,​ including repayment sources and time requirements. Cash-flow schedules,​ budgets,​ and other appropriate information should support this statement.

Existing Business: Provide financial statements for at​ least the​ last three years,​ plus a​ current dated statement (no older than 90 days) including balance sheets,​ profit & loss statements,​ and a​ reconciliation of​ net worth. Aging of​ accounts payable and accounts receivables should be included,​ as​ well as​ a​ schedule of​ term debt. Other balance sheet items of​ significant value contained in​ the​ most recent statement should be explained.

Proposed Business: Provide a​ pro-forma balance sheet reflecting sources and uses of​ both equity and borrowed funds.

Projections: Provide a​ projection of​ future operations for at​ least one year or​ until positive cash flow can be shown. Include earnings,​ expenses,​ and reasoning for these estimates. the​ projections should be in​ profit & loss format. Explain assumptions used if​ different from trend or​ industry standards and support your projected figures with clear,​ documentable explanations.

You will also need to​ submit other Items as​ They Apply:

Lease (copies of​ proposal)
Franchise Agreement
Purchase Agreement
Articles of​ Incorporation
Plans,​ Specifications
Copies of​ Licenses
Letters of​ Reference
Letters of​ Intent
Contracts
Partnership Agreement

Collateral: List real property and other assets to​ be held as​ collateral. Few financial institutions will provide non-collateral based loans. All loans should have at​ least two identifiable sources of​ repayment. the​ first source is​ ordinarily cash flow generated from profitable operations of​ the​ business. the​ second source is​ usually collateral pledged to​ secure the​ loan.

The 5 C's of​ Credit

Your bank is​ in​ business to​ make money. Consequently,​ when a​ bank lends money it​ wants to​ ensure that it​ will be paid back. the​ bank must consider the​ 5 "C's" of​ Credit each time it​ makes a​ loan. By knowing about the​ 5 C's of​ Credit,​ you​ have a​ much better chance of​ obtaining a​ loan.

Capacity to​ repay is​ the​ most critical of​ the​ five factors. the​ prospective lender will want to​ know exactly how you​ intend to​ repay the​ loan. the​ lender will consider the​ cash flow from the​ business,​ the​ timing of​ the​ repayment,​ and the​ probability of​ successful repayment of​ the​ loan. Payment history on​ existing credit relationships - personal and commercial - is​ considered an​ indicator of​ future payment performance. Prospective lenders also will want to​ know about your contingent sources of​ repayment.

Capital is​ the​ money you​ personally have invested in​ the​ business and is​ an​ indication of​ how much you​ will lose should the​ business fail. Prospective lenders and investors will expect you​ to​ contribute your own assets and to​ undertake personal financial risk to​ establish the​ business before asking them to​ commit any funding. if​ you​ have a​ significant personal investment in​ the​ business you​ are more likely to​ do everything in​ your power to​ make the​ business successful.

Collateral or​ guarantees are additional forms of​ security you​ can provide the​ lender. if​ the​ business cannot repay its loan,​ the​ bank wants to​ know there is​ a​ second source of​ repayment. Assets such as​ equipment,​ buildings,​ accounts receivable,​ and in​ some cases,​ inventory,​ are considered possible sources of​ repayment if​ they are sold by the​ bank for cash. Both business and personal assets can be sources of​ collateral for a​ loan. a​ guarantee,​ on​ the​ other hand,​ is​ just that - someone else signs a​ guarantee document promising to​ repay the​ loan if​ you​ can't. Some lenders may require such a​ guarantee in​ addition to​ collateral as​ security for a​ loan.

Conditions focus on​ the​ intended purpose of​ the​ loan. Will the​ money be used for working capital,​ additional equipment,​ or​ inventory? the​ lender will also consider the​ local economic climate and conditions both within your industry and in​ other industries that could affect your business.

Character is​ the​ personal impression you​ make on​ the​ potential lender or​ investor. the​ lender decide subjectively whether or​ not you​ are sufficiently trustworthy to​ repay the​ loan or​ generate a​ return on​ funds invested in​ your company. Your educational background and experience in​ business and in​ your industry will be reviewed. the​ quality of​ your references and the​ background and experience of​ your employees will also be considered.

Now that you​ know these simple tips on​ getting a​ loan,​ you​ should have a​ much better chance in​ obtaining the​ loan of​ your choice. the​ key to​ finance is​ to​ stay informed.




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