Well, that may not be possible. But you can dramatically improve your chances by crafting a very professional and powerful loan proposal that will force the bankers to pay attention to you because they will see you as a highly professional, organized, and serious business person.
Your loan proposal is your secret weapon for getting the banker to say "yes!" to your small business loan (and large business loans too). Unfortunately, most small business owners use their loan proposals poorly and this makes bankers afraid. Always remember, a banker's biggest fear is that you are a risky person. Being unorganized or unprofessional throws up huge red flags for a banker.
Don't give them an opportunity to say "no" to you! I'm going to teach you how to craft a winning loan proposal that will dramatically increase your chances of getting a "yes" from your banker!
Remember, when you go to present your loan proposal to a banker, they're usually not the person who makes the final decision on whether your loan is approved or not. This means they CAN'T say yes to your loan on that first meeting, but they CAN say no! Don't give them that chance!
Since using this loan proposal, I haven't had a single banker say "no" before presenting the loan proposal to the loan committee or persons in charge of analyzing the loan package.
I've had several bankers say things like.
"Wow this is impressive!"
"You've really done your homework!"
"I'm very impressed with what you've done here!"
The 5 Strategies for Making a Loan Proposal
Remember these key points to crafting and presenting a masterful loan proposal:
1) Be concise. Bankers are busy and Less Is More!
2) Be Professional. Check and double-check for all typos or inaccurate statements.
3) Be Positive. No one wants to work with a downer. Put a smile on your face.
4) Expect a yes! You get what you expect in life.
Supplies for Your Loan Proposal
The 12 Key Loan Proposal Sections
5) Photos of Operation
6) Board of Advisors
7) Significant Professional Relationships
9) Financial Statements
10) Business Plan
11) Employee Handbook
12) Employee Training Manual
* This section should be removed if you do not have a significant relationship with the lender.
Let's go over each section in more detail so you know exactly what to put in your loan proposal (and what to leave out).
1) Term Sheet (1 page maximum)
The term sheet is the simplest and one of the most important sections. It shows the banker you know exactly what you want! Most bankers see wannabe-clients who don't know how big a loan they want or what terms they're looking for.
In your term sheet you MUST include:
Amount of the loan -How big a loan do you need for your business?
Type of loan - Do you need a 5 year structured note, a line of credit, or something else?
Interest rate - Go for prime plus 2 if you're a new or risky business, or prime plus 1 or just prime if you're a business with a good operating history.
Method of repaymen t - How are you going to repay the loan? Be specific. What amount of proceeds will you set aside to repay the interest and principal on the note?
Collateral - Bankers want collateral. They want lots of it. What do you have to offer? If you don't have business assets you can offer, consider other sources such as personal investments or home equity.
Personal guarantors - Bankers always want you to personally guarantee the note. I always put "none" under personal guarantors because I want them to bring it up and then I'll say "If I personally guarantee the note, you'd be interested, wouldn't you?"
2) Executive Summary (1-2 pages maximum)
The Executive Summary should be a brief summary of the business and the business owners and how you are going to repay the loan.
You should include the following sections:
Brief financial description of business - Is this a start-up or existing business? How long have you been in business? What industry are you in?
Use of Proceeds - What are you going to use the loan for? Be specific. You must know EXACTLY what you'll be using the proceeds for, otherwise the banker will say no reflexively.
Management Experience - List your experience in that industry or business. If you don't have experience, list any training courses you've taken, books you've read, or other information that shows you've spent time, effort, and energy learning about the business.
3) Relationship With Lender*
List your relationship with the lender. If you have any checking, savings, or investment accounts or any other loans with that bank, list them here. Let them know you're a loyal customer and that you want to continue doing business with them.
If you are close friends or business partners with a key customer of the bank, explain that as well. Let them know that if they say "no" to your loan, your big shot friends will find out about it which may hurt that bank's business.
* Remember, if you have no relationship with that lender, remove this section from your loan proposal.
4) Credit Report (Page length in this section will vary based on your personal credit history)
Go to www.freecreditreport.com and sign up and get your free credit report (really, it costs $1 and then there's a $15 a month charge if you don't cancel. Just sign up and then cancel).
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 ANY negative marks on your credit report, get out your highlighter and mark up EACH and EVERY negative mark on your report.
Why would you point out the negatives on your credit report?
Because the banker is going to see them anyway! Point it out so they know that you know what's on your report!
Now here's the key: Write a VERY SHORT explanation of why your credit report is messed up.
For example, if you invested most of your cash in the stock market and lost it all in the crash in 2008 and were unable to pay some bills then, just write something simple like:
"I had invested all my savings in mutual funds and in 2008 when the market crashed I was unable to pay my creditors. I learned to diversify my portfolio."
That last sentence is key! Write down WHAT YOU LEARNED. Bankers want to know that you learned from your past mistakes so that you won't make the same mistake again! And remember to keep this explanation short - do not give a long, sad, sob story. Just keep it short, simple, and to the point.
If your credit report is excellent, with no negative marks, don't write an explanation but BE SURE to point it out when you present your loan proposal to the banker.
5) Photos of Operation (1 to 2 pages maximum)
Insert photos of your business in this section. If you have an existing business, just take some photos of your employees, offices, workspace, and building.
If you are a start-up and have no photos of operation yet, just use professional photos (or at least good-looking photos) of the key management team members.
This section is purely a psychological play. You want this loan proposal to be human. You want the bankers and the members of the loan committee to see your face and your partners' faces and your employees' faces so that they know saying "no" to this loan would hurt all of those people.
This is a vital section in your loan proposal! Don't leave it out!
6) Board of Advisors ( 1 to 2 pages maximum)
If you're serious about being in business, then you need a board of advisors. Please note, this is NOT a Board of Directors. A Board of Directors hires and fires the management team and decides how much to pay them. A board of advisors simply advises the managers of the business and helps them make good decisions.
To keep your board of advisors legitimate, you MUST NOT pay your board of advisors members ANYTHING. You cannot compensate them in any way. You can, however, feed them at meetings, send them thank-you cards and give them small gifts to let them know you appreciate their support and advice.
When choosing your board of advisors, try to get a diverse group of people on the board. You want people with backgrounds in various areas of business including (but not limited to):
- Human Resources
- Public Relations
of advisors can and will vary in size, but an ideal group would be 6-10 people. If you are a start-up business, don't feel like you have to have a full board of advisors. If you just have 1 or 2 strong professionals on your board of advisors to start off with, that shows the banker you're serious and have some serious support in the community. Just write a short note that says you will be expanding your board of advisors as the business expands.
7) Significant Professional Relationships (1 to 2 pages maximum)
Here you will list your Accountant and Attorney and any other important professional relationship you may have (such as a mortgage broker if you're in real estate).
Make sure your accountant and attorney are highly qualified. You don't need the most expensive professionals on your team, but you need qualified ones. You want to impress the banker with this. If you know your bank uses a certain law firm, you should use that law firm (assuming they can handle your needs).
Don't just list Uncle Jerry as your accountant if he does not have the necessary credentials and training to service your business. It makes you look unprofessional and risky to the banker.
8) Acknowledgments (2-3 pages maximum)
Here you want to list various acknowledgments, awards, and achievements you or members of the management team have had that relate to the business, to your personal character, or to your community service.
If you've been in the newspaper as a top real estate agent and you're starting a real estate company, that would be a great article to put in this section.
For me, I graduated from the Kelley School of Business with an Entrepreneurship degree and passed the "Spine Sweat Experience" Entrepreneurship Course which was named by Inc. Magazine as the "Best Entrepreneurship Course in America" so I always show that article and picture of my holding the plaque in my loan proposal because it's very impressive to a banker.
If you don't feel like you have any accomplishments to put in this section, then a) think harder about what you've accomplished and b) get to work!
Even if it's just a local newspaper clipping of you growing the largest zucchini in the county, at least put that in there. It's better than nothing.
9) Financial Statements
This is the section the banker will spend the most time looking at (after the business plan, of course).
You should include:
- Copies of the last two years' tax returns for yourself personally and for the business (if applicable)
- A Personal Financial Statement for each of the managers of the business
- Full Financial Statements for the business itself, preferably prepared by your accountant
If your business is a start-up, then just show projected (pro forma) financial statements of cash flow and a pro forma Income Statement.
10) Business Plan (15 to 25 pages maximum)
This is the most important section of the loan proposal. You must have a well-written, complete business plan included in your loan proposal. Most banks will not even consider giving you a loan without a business plan.
I believe 25 pages is the maximum for a good business plan. Most entrepreneurs write way too much in their business plan. This is bad for two reasons:
1) It makes your loan proposal too big, thus scaring away the lender from reading it
2) It's so long that almost no one will actually read it all, and if they do, they will probably miss out on the important parts.
Keep your business plan brief and no longer than 25 pages. This will force you to focus on the most important aspects of the business and only explain those details. For instance, if you're starting a business cleaning homes, you don't need to spend 5 pages talking about how exactly you clean mirrors and your exact dusting techniques. They're just not important to the lender or potential investors, even though it may be very important to operating the business.
I will write an article shortly in the future with more details on how to write a winning business plan.
11) Employee Handbook (Just include the table of contents, 1 to 3 pages max)
You need an employee handbook because this helps remove the lender's second biggest fear which is this:
If the business is successful, will this person be able to handle the business growth?
By having a complete employee handbook, this lets them know you are prepared for future growth and for bringing on new employees.
Do not include the entire employee handbook in your loan proposal! Only include the table of contents and cover page. If the lender wants to see the full employee handbook, let them know you have it available and can hand them a physical copy or e-mail it to them.
12) Employee Training Manual (Just include the table of contents, 1 to 2 pages max)
The employee training manual also helps remove the lender's second biggest fear. Show them that not only do you have employee rules and regulations well thought out and put into a handbook, but you also know exactly how you are going to train them.
Be sure to include all the key areas in which your employees will need training and how long each area will take.
For example you might have some training areas like this for a restaurant business:
Proper Sanitation 15 minutes
Food Prep 60 minutes
How to Masterfully Present Your Loan Proposal
Now that you have your 12 sections of your loan proposal written, proof-read, and complete and put together neatly in your 3-ring binder, it's time to learn how to present your loan proposal for maximum effectiveness.
Here's what to do:
1) Connect with the Banker and get an appointment
Just call the bank and ask for the commercial loan office who is in charge of small business loans. Once you talk to the loan officer, explain briefly (in 30 to 60 seconds) what your business is, and how big a loan you need. Make sure that your desired loan amount is within their lending limits.
Then, ask for a 5-minute appointment to present your complete loan proposal. Let them know you are 100% prepared to meet with them and present your loan proposal in just 5 minutes.
2) How to Present your Loan Proposal
Show up ON TIME and present your loan proposal in 5 minutes. Just go over each section very briefly and explain one key point about each section.
Then, let the banker know you appreciate them taking the time to meet with you and that you look forward to hearing from them. Be prepared to get up and walk out. If they ask you to stay and answer questions, great! That means they're interested.
If not, that's ok too. Just thank them for their time and walk out. Let them know they can call you and you'll be happy to answer questions over the phone. They will likely call you and ask more questions.
3) Go over the terms of the loan with the banker and sign the note
When a banker is interested in giving you the loan, they'll call you and let you know and have you come in to review the note and sign it. Make sure you read the entire loan document. You'll want to be familiar with every term and detail of the loan. If you're unsure about anything, either ask the banker (if they're not busy) or ask your attorney.
Don't be in a rush to sign the loan. Let your banker know you need time to review it with your business partners or attorney. They will understand, and in fact they will respect you for not rushing into signing the contract.
Don't delay too long though! If you wait any longer than 2 or 3 days, the banker will think you're not interested, or at worst, that you're unprofessional and a slow decision-maker. This may actually cause them to invalidate the contract and say they no longer want to do business with you.
Take your time to review the loan, but don't take too much time!
4) Celebrate !
Congratulations on your new business loan! You deserve it!
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