Are you about to apply for a loan but don’t know how to write a bank profile? If yes, here is a comprehensive guide on how to write a perfect business loan proposal that will convince lenders to give you the money.
There is one thing a business needs to start and sustain before it starts to earn its own money, and that thing is finances. Many small business owners often do not have the money to finance or maintain their businesses, and the only other option they can think of is applying for a business loan. But before you start applying for a business loan, you need to write a bank profile or business loan proposal.
What is a bank profile/business loan proposal?
A bank profile or a business loan proposal is generally viewed as a sales pitch you share with your bank or lender. Having a good business loan proposal is the best way to improve your chances of obtaining a loan. A strong business loan proposal will also show the lender that your business is currently in good financial shape and can repay a loan.
The approval of your loan application depends on how well you present yourself, your business, and your financial needs to the lender. If the lender is not convinced what you need the loan for, they may not approve your business loan.
Your bank profile should contain detailed information about your company’s management, the company’s finances, and what you need the loan for. Lenders view a bank profile as evidence that your business has sound management, experience, and a deep understanding of the market. As such, your business loan proposal should leave your banker convinced that you know what you are doing.
Your bank profile is your chance to make a good impression on the lender about your business. So if your proposal falls short, not only would the bank reject your proposal, you may not have another opportunity to apply for a loan again.
There are many formats you can follow to write a bank profile, but we will show you the correct way to do it so that you do not miss any necessary information that could jeopardize your chances of obtaining the loan.
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Why write a bank profile (business loan proposal)?
Lenders ask for a properly written bank profile or loan proposal for many reasons. The main reason is that the proposal can give the lender a summary picture of the financial situation of your business. It may reflect the strength of your management or perhaps your weaknesses. When done right, your loan proposal can also reinforce your deep understanding of your market, your industry, and your business at the same time.
10 Important Elements to Write a Bank Profile
A small business lender can view the loan proposal and get a clear picture of your cash flow position, as well as your future cash flow and income projections. If your loan proposal contains all the required information, the lender could almost make the loan decision without going any further.
Below are the 10 crucial elements your business loan proposal should contain.
It takes a lot of information to represent your business accurately. So you’ll want to make sure you include your most impressive facts and figures in your bank profile. However, you also want to try to keep it as short as possible. You should also use straightforward language when writing your proposal so that it is easy to understand.
1. Information about your business
The first sentence of your loan proposal should always be who you are and how much you are applying for. From there, you can start to get more detailed about your business, but not so detailed that your proposal becomes long and tedious.
The basic information to include in your bank profile is your business name, business entity structure (sole proprietorship, partnership, private limited company, public limited company, etc.), time in business, current annual income, current number of employees, and other relevant information.
2. Your business model
Another thing that should be in your proposal is what products or services your business provides. How do you serve your customers? Describe your typical customer, your market base, industry growth, and your competition. Be sure to indicate how your business generates income. This is especially important when a lender is looking to extend credit and feels confident about the likelihood of repayment.
3. What do you need the business loan for?
Each lender would like to know why you want the money you are asking for and how you will use it. It is why your business loan proposal should include a detailed description of your planned use of the funds, along with any additional information on expected and variable costs, the quality of the investment and its impact on your business.
For example, if you plan to buy a large piece of manufacturing equipment, the lender will want to know about the equipment and the company you are purchasing from.
4. Proof of payment
This is the section where you can get to the numbers. Here, you need to indicate the loan amount you want to receive and show the lender how you plan to repay it. Prove this by referring to your cash flow projections, which you carefully calculated based on your current balance sheet’s prior year’s cash flow reports, PL’s statements.
Show how you plan to adjust to the new debt repayment in your current budget and indicate how the new loan will help increase income to facilitate that repayment in the future.
5. Information on previous business debts
If you have other outstanding debts, you will need to provide detailed information about them. It should include the name, address, contact information, and the amount of the debt in question. Please note that you should always include this information as almost all lenders will request it. So there is no point in hiding it.
6. Relationship with the lender
List your relationship with the lender, if you have one. If you have checking, savings or investment accounts or any other loan with that bank, please list them here. Let them know that you are a loyal customer and want to continue doing business with them.
If they are close friends or business associates with a key bank customer, explain that as well. Let them know that if they say “no” to your loan, their friends can find out, which can hurt that bank’s business. If you have no relationship with that lender, remove this section from your loan proposal.
7. Your personal and financial background
When applying for a loan, you should know that the lender would like to know your financial details, including those of any business partners and management team you have. This means they need names, addresses, and contact information for any partners you have. And you can expect they would also request your tax returns, bank statements, and credit reports.
8. Professional background information for your management team
As you collect personal information about your management team, you will need to indicate whether any of them have prior management experience or industry-related experience that applies directly to your current business.
9. Links to your website, social media, and other online presence
Every business needs a way to market and advertise its product or service. This is where you show the lender that you are proactive in trying to grow new business. Briefly list the social media sites you use, such as Facebook, Yelp, etc., plus your website URL. If you use any other advertising method or reach out to specific industry groups to attract new business, include them here as well.
10. Your business documents
You may have made a lot of claims in your business loan proposal. So now, it’s time to present evidence to support your claims. This evidence must be in the form of your business documents. You should attach your balance sheet, profit and loss statement, cash flow statement, financial forecasts/projections, etc.
10 Vital Steps to Write a Bank Profile that Wins
A banker is often the first person to contact you regarding your bank profile and loan application. So you should put together a document that presents your business in the best possible light. For a business loan proposal to be appropriately appreciated, it has to come in several sections, and these sections must explain one aspect of the business at a time. Here is a step-by-step guide for you to write a bank profile that can boost your success rate.
Step #1: Write the term sheet
This is the place to start when you want to write your loan proposal. It is your first and your first page. This section should be only one page long, and this is where you should write what you want from the lender.
Therefore, your term sheet should include the amount of money you need from the lender, the interest rate you can afford, and your method of repayment. Other things to include are the warranty you offer and your guarantors, but these should all be brief.
Step #2: Your Executive Summary
The Executive Summary is where you should write a summary of the business and its owners and how you are going to repay the loan. This section should preferably be one page, two pages maximum. An Executive Summary shall include:
- Brief financial description of the business: that is, if the business is a startup, if not, how long has it been in business and what industry to serve.
- Use of funds: what you are going to use the loan for, and you must be specific about it. If you are not sure why you are looking for a loan and what you will do with the money, don’t bother asking for it.
- Management experience: that is, the experience that you and your management team have in the business. If you are inexperienced, please list the training courses you have taken, the books you have read, or other information that shows that you have put in the time, effort, and energy to learn about the business.
Step #3: Your credit report
This page is where you should include your credit report. Save a copy of your credit report and then print it out and insert it into this section of your loan proposal.
If you have negative credit scores on your credit report, you may need to highlight them and write a short explanation about what happened, why, and what you learned from the experience.
Bankers want to know that you have learned from your past mistakes not to make the same mistake again. And remember to keep it short. If your credit report is excellent, with no negative score, leave it at that.
Step #4: Provide Photo Proof
Many people may not see this section as a priority, but it is necessary to insert photos to show proof of your business. You may only need to take a few photos of your employees, offices, workspace, and building.
If you are an entrepreneur and don’t have operation photos yet, only use professional photos of key management team members. This section is only intended to appeal to the human side of the lender to show them that many people have interests in your business.
Step #5: List Your Professional Relationships and Your Experience
Here you will list your accountant and attorney and any other critical professional relationships you may have. You must ensure that your accountant and attorney are highly qualified so that your business is taken seriously.
You don’t need the most expensive professionals on your team; you only need the qualified ones so that your lender is impressed. If you know that your bank uses a specific law firm, you should use that law firm if they can handle your needs and are not too expansive. You should spend a page or two on this, but not more.
Step #6: Loan Application and Repayment
Now you have reached the core of the loan proposal business. This is where you need to indicate how much money you need and how you determine this amount. Include budgets for equipment or supplies, and construction costs, etc.
Here, you should be able to answer the question, “Why do you need that much money ?” Also, explain precisely what you will use the loan for. Other things to include in this section are:
Loan repayment: Describe the terms you expect to receive (interest rate, term, etc.). Show how you can meet that repayment schedule based on sales and cash flow projections. Please note that you will need to negotiate the loan terms with your lender based on your business risk assessment.
Warranty: Bankers want collateral, and this is one of the things that can make or break your loan application. If you don’t have business assets to offer, consider other sources of repayment, such as personal investments or home equity. Borrowing a large loan without any collateral is unlikely to be successful. If you intend to secure the loan with collateral, make sure that the loan term does not exceed the useful life of the item you are using.
For example, a bank will not insure a 20-year loan against a computer that has a projected life of two years. All loans must have at least two identifiable sources of repayment. The first source is generally the cash flow generated from profitable business operations. The second source is usually collateral to secure the loan.
Your guarantors: Bankers always want you to guarantee the loan personally. You must indicate if you would personally guarantee the loan or bring someone else to do so.
Step #7: Your equity investment
A business owner is obliged to put part of their own money in the business to obtain a loan. The amount depends on the type of loan, the purpose, and the terms. The business can accumulate equity through retained earnings or the owner’s cash injection. Most lenders want to see that the total liability or debt is no more than four times the amount of equity.
Step #8: Your financial statements
This is the section that the banker will spend the most time looking at, as it is the main reason for the proposal. In this section, you should include; copies of tax returns for the last two years for you and the business (if applicable), a personal financial statement for each of the business managers, complete financial statements for the business itself, preferably prepared by your accountant.
In addition, you must include the personal tax returns and financial status of any owner with a minimum of 20 percent interest in the business. The proposal must contain a balance sheet and income statements that reflect the most recent financial activity of the companies.
For a startup business, produce statements detailing projected revenue. These projections can help your case, although the bank may pay more attention to your financial statements if you are starting a new business.
If there are any negative marks on your financial statement or something about your finances that you need to explain, write a short note at the bottom of your financial statement explaining it. If your business is a new company, show the projected financial (pro forma) cash flow and a pro forma income statement.
Step #9: Your business plan
This is an important section when you write a bank profile. You should have a complete and well-written business plan included in your loan proposal. Most banks will not even consider giving you a loan without a business plan. You should keep your business plan short, so you don’t lose your reader’s attention.
Keeping your bank profile short will force you to focus on the most critical aspects of the business and only explain those details.
For example, if you are starting a business cleaning houses, you don’t need to spend 5 pages talking about how you clean mirrors and your exact techniques for removing dust. Although they could be vital to operating the business, they are not crucial to the lender or potential investors.
Also, in this section, you need to provide a workable marketing plan. The plan should provide an answer to these critical questions: Is there a proven market for your product or service? Who are your competitors, and what are their strengths and weaknesses? What is your customer profile? What is your key competitive advantage? Etc.
Step #10: Include Supporting Documents
You should reinforce your commercial loan proposal by including documents that support, explain, and boost the credibility of your plan.
These documents are market studies or other research that support your conclusions and forecasts; documents to support financial data (e.g., copies of leases, subcontractor estimates, letters of credit); customer testimonials; and media reports about your business.
The purpose of the supporting documents is to show that your proposal is based on facts.
While there may not be a one-size-fits-all way to write a bank profile or a business loan proposal, following the steps mentioned above would ensure that you deliver a loan proposal that is acceptable to lenders. All in all, we have provided you with almost everything necessary to write a bank profile to secure a business loan.
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