How to Get a Business Loan

How to get a business loan

At some point of time, every business owner seeks loan. The purpose of the loan amount may be for startup, expansion, diversification  or any other business related needs. So, how can you get a business loan? The key point of this question is, how can you convince your lender or bank to provide you loan for your business?

Well, the answer is – preparing an effective and well-documented commercial loan proposal that explains your business, the objective or purpose of the loan amount, collateral to be presented for the loan and so on. So, while writing a proposal to get a business loan, it is very important to present yourself, your business, and your financial needs very well to your prospective lender. It is also important to keep in mind that your goal is to persuade the bank or the lender that you will succeed in your business and will be able to pay the loan on time.

Tips on How to Get a Business Loan

Step 1: Consider 5 C’s of Business Loan

Before starting to write your business loan proposal, you need to be well aware of the 5 Cs of business loan. By 5 Cs of business loan, we mean Cash flow, Collateral, Capital, Character, and Conditions.  Let’s see what each of these means and their role in a business loan proposal:

  • Cash Flow

Cash flow is a very important part of any business loan. It is that one aspect which gives the bank the confidence that you’ll be able to pay your loan back. Hence, you may be asked to present cash flow of previous years or a projected cash flow for few years to come. The cash flow statement will help the bank or the lender analyze if you can afford to pay them back, after you’ve covered other costs like rent, salaries and so on.

  • Collateral

Collateral can be presented in the form of property, equipment, stock or other assets. If in case you are not able to pay the loan amount, collecting collateral is the last resort for most lenders. If you have a good collateral, it will be easier for you to obtain the loan.

  • Capital

The amount of capital you have, that you are ready to invest in the business, also determines the success of your loan proposal. Banks will compare the amount of money you are looking forward to borrow, with the amount you actually have or are planning to invest in the business. And, if the bank finds out that you are risking a significant amount of your money in the business, they may think that you are committed enough to make your business successful.

  • Character

Your personal characteristics and general background will also be studied while deciding on granting the loan. If the bank or the lender finds out that you are serious enough about your business and have the qualities to run the business effectively, they are likely to take you and your proposal seriously. References from people, you’ve done business with, will also be a plus point in your business loan proposal.

  • Conditions

Conditions here relates to the condition of the industry where you will be operating your business. Lenders may probably ask you for the analysis of the business environment of the industry. Thus, you can prepare a SWOT analysis of the business and come up strategies to deal with the threats and challenges. Now that, in return, will increase your strengths and opportunities.

Step 2: Gather answers to the relevant questions

After you are done with the planning and preparation of the 5 Cs of business loan proposal, move on to gathering answers of few relevant questions. There are certain facts and information that has to be included in your business loan proposal. So, your first task while preparing a business loan is to gather information to answer the following questions;

  • How much money will the company need?
  • How will you be spending the loan amount/ determine the purpose of the loan amount.
  • How will the business repay the loan?
  • Why should the bank trust you as a reliable candidate?
  • How will you deal with the loan if in case you are unable to repay it?

These are the five most common questions that a lender may put before you while you apply for the loan. So, before starting to write a loan proposal, make sure that you gather answers to these 5 questions.

Step 3: Prepare a Proper and Complete Business Plan

While other factors contribute a lot in the acquisition or rejection of a business loan, a proper and complete business plan is the heart of the business loan proposal. Include the following elements in your business loan proposal;

  • Executive Summary

The executive summary in your business plan provides a concise view of your business by briefly describing your company, its industry, and your competitive advantage. Along with this, the executive summary should also describe the project that needs financing and the amount of finance required.

  • Company Description

The body of your business plan should describe the company’s history, current operations and strategies for maximizing the strengths and dealing with the threats and risks.

  • Management Team

The business plan should also say something about the management team, and the skills, qualifications and experiences of each member of the management team. It is very important for the bankers to know about the strengths of the management team.

  • Key Financial Data

The financial section of your business plan should highlight the financial strength of your business. In this section, you need to provide the financial statements and forecasts for the next 2 to 3 years. This information will provide the banker an insight about your track record, your capacity and your ability to repay the loan.

  • Marketing Plan

You need to incorporate a marketing plan in your business plan that answers the following questions:

Is there a market for your product/service?

Who are your major competitors and what are their key strengths?

What are your key competitive advantages? and so on.

  • Production Plan

Your production plan should clarify the operational capacity of your company, and whether it meets your projected sales.

  • Human Resource Management

The human resource management plan included in your business plan should demonstrate the ability of your business to recruit, develop and retain the right people to take your business projects further.

Step 4: Prepare Other Supporting Documents

Apart from these documents, there are also other documents that can provide support to your business loan proposal that will help you obtain the business loan. Some of them may be;

  • Market studies or other research supporting your conclusions and forecasts
  • Documents to support financial data
  • Client testimonials and so on.

The purpose of the supporting documents is to prove that the information provided in your business loan proposal is based on facts.

Following the given steps properly will definitely help you in obtaining a business loan. However, if you are not confident about preparing a business loan proposal, you can always take professional’s help.

Diligent Company Services is a part of the CCP Group of Companies, a multi-disciplinary financial services group based in the British Virgin Islands. We are fully licensed and regulated by the BVI Financial Services Commission and have been providing financial services in the British Virgin Islands since 1991. Call us at  (284) 494-6777 if you are looking forward to preparing a business loan proposal. Or get in touch with our experts here. We will assist you in preparing the best business loan proposal.

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