small business proposal ideas and tips for a successiful loan application

Business Proposal Ideas

A small business proposal is a written offer from a business owner to a prospective buyer or a financier.

In addition to a business plan, a small business proposal is a very important document when requesting for a business loan. It not only depicts professionalism but also shows how serious you are about your business. With that said, the question you should ask yourself is how effective will your business proposal be, to guarantee you financing.

Unlike a business plan, a business proposal gives you a chance to expound on the potential of your business and to show your lender that your business proposal ideas are worth financing given the prospects and capacity of repaying the loan.

Using the business proposal, you will be obliged to assure lenders that other than achieving your target, you will be able to service the financial obligations that come with the monies being lent, which means they will need convincing on top of the assets you will be using as collateral.

The business Loan proposal Presentation

A business proposal should be more extensive than a business plan especially in interpretation of the operating figures.

Choosing the perfect Lender(s) for your business proposal ideas

There are many financial institutions offering different products in the market. The biggest mistake most entrepreneurs make is making a loan presentation to the wrong lender. Before you even write your proposal, do a thorough 'window shopping' of the various products these financial institutions offer. Also get to know their terms especially whether the loan can be tailor-made to suit your current situation. It is important to seek the help of a professional accountant to do the analysis of these terms (underwriting analysis) for you as there will be some technical terms involved.

Other things to consider on a lender before writing your small business proposal

  1. The kind of financier. There are different kinds of lenders starting with commercial banks, Venture investors, Formal institutional venture funds, corporate venture funds, Angel investors, Government programs, etc. commercial banks are known to be very conservative especially while financing start up business proposal ideas, while venture investors insist on retaining a certain percentage of ownership in the new business that they fund. It's advisable to consider other sources before considering a commercial bank for your start up.
  2. Terms of the loan. Different financiers will offer different terms depending on how averse they are to the risks associated. Consider your situation and go for the lender that perfectly suits you. Example of the terms is the interest rate, repayment and grace periods.
  3. Collateral. Even if a particular lender may be having a very competitive rate, you may not be able to access their funds if they assets as collateral and you don't have the assets. In your situation, you are more likely to go for a cash-flow lender than a Collateral lender.
  4. Level of relationship. Do you personally know the authority or the lending officer in charge of the lending institution? i would advice you to talk with him about your business proposal ideas on a non-official capacity before presenting the proposal to him. Although it does not guarantee financing, you have a better chance of your proposal being taken into consideration.
  5. Lending limits. It will do you more harm than good to go for a lender who is providing you less than the minimum amount you require for take off unless you have other sources of financing the deficit.

After you have made all the considerations above and settled on your particular lender, its time now to write down the business proposal with your particular lender in mind. The proposal itself should have the following contents.

  • A cover letter-Remember I told you that you are writing your proposal to a specific lender. A person reading your cover letter will definitely tell whether the proposal is for the lender personally or it is a generic proposal being sent to every lending institution. A generic proposal will cost you the financing at the first instance.The cover letter should be brief with not more than two pages and should be as personal as possible. If you have had contact before with the lending officer before over the same issue, reference to such meeting will be crucial. The cover letter should describe your business, the size of the loan requested and the purpose of the loan.Use the cover letter to make an impression making emphasis on you strongest aspects while noting the weaknesses too and how you will overcome them.
  • Executive summary-Remember the executive summary we discussed about in the business plan page? Just copy and paste it the way it is to the proposal. Click here to visit the business plan page.
  • The Collateral-If possible use Photographs in addition to certificates of ownership when you are applying for funding using collateral. Pictures of the collateral from various angles will exhibit the condition of the collateral and will assure the lender of a reduced risk as the lender will use that asset to recover his money incase of default.If the collateral is in a not so good condition, make the lender focus on other strong aspects of the proposal like strong cash flow or a short ROI time.
  • Marketing Plan-We expounded a lot on marketing plan in the business plan. Click here to revisit the marketing plan on our business plan page.
  • Financial Statements-Seek the help of an accountant to draw your business projections to neatly prepared financial statements. These statements are the expanded version of the statements in your business plan.
  • The Underwriting Analysis-This is the analysis you did that enabled you to settle on a particular lender whose terms suit your situation. With the help of your accountant, you will be able to analyze terms such as: Debt Service Coverage Ratio (DSCR), Loan-To-Value Ratio and Debt Ratio.
  • Conclusion-When concluding your proposal, you must show a strong believe in the prospects of this business to convince the lending officer or committee that it deserves their support. That's it. Now the ball is in your side. Its time take your first step towards your small business proposal.
  • Important links on small business proposal ideas This website is run by DEBORAH L. KLUGE, an indipendent consultant who Provides services in proposal writing, management and costing for firms, organizations and universities bidding on government contracts and grants. She also Provide in-country technical assistance in management systems development, project management, project design and implementation, workplan development, and start-up of projects in the Middle East, Africa, Asia, Latin America, Caribbean, and former USSR.

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