Elements of a Successful Small Business Loan Application

This article was adapted from the U.S. Small Business Administration's Small Business Startup Kit.

If you want to succeed in getting a loan, you have to be prepared and organized. You must know exactly how much money you'll need, why you need it and how you'll pay it back. You've also got to be able to convince your lender that you're a good credit risk.

Getting your loan request approved depends on how well you present yourself, your business and your financial needs. Lenders want to make loans, but they're only going to make loans they know will be repaid.

The best way to maximize your chances of getting a loan is to prepare a written proposal. A well-written loan proposal should include a number of things:

General Information

1. Business name, names of principals, Social Security number for each principal and the business address.
2. Purpose of the loan: exactly what the loan will be used for and why it is needed.
3. Amount required: the exact amount you need to achieve your purpose.
4. Business description: history and nature of the business, its age, number of employees and current business assets.
5. Ownership structure: details on your company's legal structure.
6. Management profile: a short statement on each principal in your business, including background, education, experience, skills, and accomplishments.

Market Information

1. Clearly define your company's products as well as your markets.
2. Identify your competition and explain how your business competes in the marketplace.
3. Profile your customers and explain how your business can satisfy their needs.

Financial Information

1. Balance sheets and income statements for the past three years. If you are starting out, provide a projected balance sheet and income statement.
2. Personal financial statements on yourself and other principal owners of the business.
3. Collateral that you're willing to pledge as security for the loan.

Review of Your Loan Request

The lender is primarily concerned about repayment. To help determine your ability to repay a loan, many loan officers will order a copy of your business credit report from a credit-reporting agency such as Dun & Bradstreet. Therefore, you should work with these agencies to help them present an accurate picture of your business.

Using the credit report and the information you've provided, the lending officer will consider five key issues:

1. Have you invested savings or personal equity in your business totaling at least 25 percent to 50 percent of the loan you are requesting? A lender or investor will not finance 100 percent of your business.
2. Do you have a sound record of creditworthiness as indicated by your credit report, work history, and letters of recommendation? This is very important.
3. Do you have sufficient experience and training to operate a successful business?
4. Have you prepared a loan proposal and business plan that demonstrate your understanding of and commitment to the success of the business?
5. Does the business have sufficient cash flow to make the monthly payments?