With several government financing programs working as a backstop, financial lending institutions in Canada are ready and willing to lend to small businesses. To position your business for the best chance of success in obtaining a loan, you need a well-conceived loan proposal. Lenders need to be confident your business is a sound investment with a solid long-term outlook.
To address their key concerns, your proposal should include some key documents for answering the following questions:
- How much money does your business need to borrow?
- How will the loan proceeds be used?
- How will the business repay the loan?
- What makes your business a reliable candidate for a loan?
- What will your business do if it can’t repay the loan?
Your business plan forms the core of your loan proposal because it provides the evidence a lender needs that your business can succeed. Your business plan should clearly state your business’s mission, core values, and primary goals. A complete business plan should include an executive summary, a business summary, a marketing analysis, management profiles, and a cash flow projection.
Marketing and Sales Plan
Your marketing analysis breaks down the current marketplace, describing the trends, target market, competition, and opportunities. Your marketing plan details your strategies for capitalizing on that information and capturing market share. Your sales plan includes your sales objectives for meeting revenue goals and the specific strategies for turning your target market into customers.
Lenders want to be able to look back at your financial history to gauge your management capabilities and look forward at your financial prospects. Although each lender might have different requirements, most will require a three-year projection for your income statement, balance sheet, and cash flow statement. If you aren’t 100% confident in preparing these documents, you may want to enlist the help of a business accounting expert or use QuickBooks Online to generate financial statements.
Lenders want to see that you have put careful thought into determining the amount of money your business needs to borrow and how that money will be used. When you are describing the loan purpose, be specific in how your business will use the capital and how its use will create the capacity to increase revenues.
If your business lacks a sufficient credit history or collateral, some lenders might require a personal guarantee on the loan. Lenders look first to the business for collateral – if it isn’t sufficient, they look next to the business owner’s own equity position. A loan guarantee document should list all forms of collateral, both business and personal. When a personal loan guarantee is required, lenders may also require a personal financial statement and three years of tax returns from the business owner.
To ensure the best possible outcome, your loan proposal package should be professionally prepared with the expectation that you will be asked to make a formal presentation. Beyond all of the numbers and analysis, lenders look to the loan proposal and how it is presented as a gauge of your competence and confidence in managing your business to success.