There’s (almost) no luck involved when it comes to getting a business loan.
If you write a great business loan proposal and present it well, you will have a very high chance of getting the loan you’re looking for.
How Pros Get a Business Loan
You can dramatically improve your chances of getting a business loan by crafting a 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 prepare their loan proposals poorly and this makes bankers afraid (most bankers are incredibly risk-averse, which means they may say no at the slightest hint of risk).
Always remember, a banker’s biggest fear is that you are a risky person and that your business is too risky. Being unorganized or unprofessional throws up huge red flags for a banker, and that can virtually guarantee you don’t get the loan.
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.
Who Approves the Loan?
When you go to present your loan proposal to a banker, the person you’re talking to is usually not the person who makes the final decision on whether your loan is approved or not.
They’re the screening person—they get a first impression of you, take some notes, and then, if they think it’s worth pursuing your project, they’ll bring your proposal to a committee, panel, or executive who can make the final decision.
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.
I learned these secrets from Bill Bartmann, a brilliant billionaire businessman. Clearly, he knew a thing or two about getting business done, and I was determined to learn how he did it. Now I want to share those secrets with you to help you achieve your own success.
This Loan Proposal Template Works
Since using this loan proposal formula, I haven’t had a single banker say “no” before presenting the loan proposal to the loan committee or the people 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 Presenting 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!
If you talk too much or ramble, you’re more likely to say something that will hurt your chances than you are to say something that will help.
Don’t volunteer information you haven’t been asked for, but do be ready to answer any questions that come along thoroughly and clearly.
Keep your responses short, simple, and easy to understand—you’ll prove that you know your business inside and out while also helping the banker stay on schedule.
Long meetings rarely lead to an approved loan unless the banker is clearly very interested in your business.
If you feel like your presentation is dragging or the banker isn’t interested in what you’re saying, just move on to the next part of your presentation.
2. Be professional. Check and double-check for all typos or inaccurate statements.
Fools rush in. Professionals get prepared ahead of time, and when they show up asking for a loan, they have every single detail in order.
Not only do you want to make sure that all the facts and figures you’re presenting are accurate and can be backed up by evidence, but you want to be sure that everything is arranged neatly and is proofread carefully.
Just like a poorly edited book tends to rack up bad reviews, a poorly edited loan proposal that’s filled with misspellings and typos can make you look unprofessional—and like you aren’t willing to put in the effort to present yourself well.
So how can the banker trust that you’ll pay attention to the details of how your business is run if you don’t pay attention to the details of your loan proposal?
Take the time to have a team member or hire a great editor to look over your proposal—it’s a small investment for potentially huge results.
3. Be positive. No one wants to work with a downer.
Walk into your meeting with a smile on your face and be passionate about your business.
Passion and positivity make a huge difference.
Your energy when you present to the loan officer will come through in a big way. If you’re too nervous, afraid, or jittery, you’ll make them feel uncomfortable and more likely to reject your proposal.
If you’re struggling with nerves before your meeting, try some simple deep breathing exercises to calm yourself down.
Let your enthusiasm for your business show through and you’re well on your way to success.
4. Expect a yes. You get what you expect in life.
If you go through each of the steps taught in this article, know what you’re doing with your business, and use our loan proposal template, you will succeed if you believe in yourself.
If you walk in expecting a no, you’ll likely self-sabotage in your presentation and won’t get the loan you’re looking for.
Banks are looking for good opportunities to use their money, and that means investing in people who are likely to succeed.
If you believe you’ll succeed and let your confidence shine through, you’re more likely to get your loan and to impress investors, customers, and potential partners!
5. Persistence is key. If you get negative feedback, learn from it and improve.
You can still get a loan if you’re brand-new in business and don’t have any experience, but you’ll have to show that you can be persistent and learn from feedback.
Business (and life) is basically a giant game of trial and error.
You have to learn from your own mistakes (and you should also be constantly learning from others, like modeling our successful business loan proposal example).
Supplies for Your Loan Proposal
Here are the supplies you’re going to need to craft an amazing loan proposal that will blow the banker away:
- A 1/2″ plain white 3-ring binder
- A 3-hole punch
- Printer, paper, ink
- A highlighter
- A 12-tab 3-ring binder divider set
The Loan Proposal Template
The ideal business loan proposal has 12 key sections.
You’re going to want 12* tabs (sections) in your loan proposal.
Here are the sections:
- Term Sheet
- Executive Summary
- Relationship With Lender*
- Credit Report
- Photos of Operation
- Board of Advisors
- Significant Professional Relationships
- Financial Statements
- Business Plan
- Employee Handbook
- Employee Training Manual
* This section should be removed if you do not have a significant relationship with the lender. If you’ve been banking with them for more than a year, include it. If you’ve never worked with that bank before, don’t include it.
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 section, but one of the most important. 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? If you’re not sure, it’s time to go do some more research on what these terms mean and what, precisely, you need to support your business.
Interest rate: Ask for the prime rate plus 2 if you’re a new or risky business. Ask for prime plus 1 or just prime if you’re a business with a good operating history and strong financial statements.
Method of repayment: 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—and lots of it. What do you have to offer in case your business can’t repay the loan? If you don’t have business assets you can offer, consider other sources of repayment such as personal investments or home equity. Asking for a big loan without any collateral is unlikely to succeed.
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. Then I’ll say, “If I personally guarantee the note, you’d be interested, wouldn’t you?” You will pretty much get the loan every time if you follow the template and you’re willing to provide a personal guarantee.
2. Executive Summary (1-2 pages maximum)
The Executive Summary should be a brief summary of the business and its owners, as well as 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 an 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. If you’re not crystal clear on why you’re looking for a loan and what you’re going to do with the money, don’t bother asking for a loan!
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 one. 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 AnnualCreditReport.com to check your credit through the official free service.
You can only check for free once per year with each of the three major reporting services, so if you’ll be checking your credit more than three times a year, you may also want to go to CreditKarma.com to sign up for your free credit report (as far as I’ve seen, this is the only “free credit report” website that actually lets you see your credit score anytime you want for free without signing up for a monthly fee).
Your credit card company may also offer a free credit reporting or monitoring service—check with them to find out.
- 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’ve 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 out that great credit when you present your loan proposal to the banker.
5. Photos of Operation (1-2 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 headshot photos (or at least good-looking pictures) 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, 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 (1-2 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. Seriously: 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 to contribute. You want people with backgrounds in various areas of business including (but not limited to):
- Human Resources
- Public Relations
Your board 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, 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 (1-2 pages maximum)
Here you will list your accountant and attorney and any other important professional relationships 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 do 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 simply 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 include that article and a 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, put that in there. It’s better than nothing. Remember, you want to show confidence and personality in your proposal, and that prize-winning zucchini shows that you’re capable of being attentive, persistent, and dedicated when it comes to achieving success!
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 there are any negative marks on your personal financial statement, or if there’s anything about your personal finances that you need to explain, write a brief note at the bottom of your personal financial statement explaining it. For example, if your parents pay for your housing, then let the banker know—it’s good because it lets them know your monthly expenses are lower than they would otherwise be, thus reducing the lenders’ risk. And in the end, the name of the game is reducing lender risk to get your loan approved.
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 (15-25 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:
- It makes your loan proposal too big, thus scaring the lender away from reading it.
- 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.
Keeping your business plan brief 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 might be very important to operating the business.
We’ll cover business plans in more detail in the future, but for now, you can check out the basics of how to write a business plan for a freelance writing business.
11. Employee Handbook (just include the table of contents, 1-3 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 its growth?
By having a complete employee handbook, you’re letting 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 email it to them.
12. Employee Training Manual (just include the table of contents, 1-2 pages max)
The employee training manual also helps remove the lender’s second biggest fear, about your capacity to handle growth. Show them that not only do you have employee rules and regulations that are well thought out and arranged into a handbook, but you also know exactly how you are going to train your new hires.
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: 30 minutes
Workplace Safety: 60 minutes
Food Prep: 60 minutes
Customer Service: 120 minutes
Payroll and Tips: 60 minutes
Note: Remember, the more detailed you are in writing your employee training manual, business plan, and loan proposal, the more likely you are to get the loan or investment you’re looking for. Don’t cut corners or skip steps. Skipping even one small detail could make the difference between a yes or a no from the bank’s loan committee.
How to Masterfully Present Your Loan Proposal
Now that you have your 12 sections of your loan proposal written, proofread, 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, which 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 Pitch 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 okay, 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, then 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, worse, 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!
Congratulations on your new business loan! You deserve it!
Important Business Loan Terms
Before you present your business loan proposal, you’ll want to know some key concepts and terms.
This will help you understand what you’re asking for and be sure you’re asking for what you really need. And that’s key to reassuring the bank loan officer that you’re a professional worth taking a risk on.
Make sure you walk into the meeting with a proposal that makes sense for your business and for the bank.
APR (Annual Percentage Rate)
This is the amount you’ll be charged on yearly basis for the right to borrow money. So a loan with an APR of 12% is charging you 1% of the total amount borrowed each month in interest. This means that if you borrow $10,000, you’ll owe $1,200 in interest each year.
When you borrow money, you agree to pay interest on the loan—a fee that compensates the lender for giving you that money. The interest rate will vary depending on the lender, the amount of money you’re borrowing, the length of time you want to use that money, your credit score and perceived risk of default, and the current prime lending rate.
Line of Credit
Think of a linef of credit as an imaginary checking account: the bank gives you access to a certain pool of money that you can pull from at any time. When you apply, you ask for a certain amount—say, $100,000—and if the bank approves you, you can pull money out of that $100,000 at any time. When you do, it reduces the amount you can pull in the future, like with a checking account. Unlike a checking account, you have to pay the money back according to terms you’ve agreed to with the bank—you’ll often have a minimum monthly payment, like with a credit card.
You only have to pay interest on the amount of the line of credit you’re actually using. So if you have a $100,000 line of credit but you’re only using $10,000 of it, you only pay interest on that $10k, not the whole amount. This makes lines of credit particularly great for small businesses that might need flexible funding.
The prime rate is the interest rate that commercial banks charge their best customers, the ones with the biggest accounts, best credit, and best track records of repayment. The rate is based on the federal funds rate, which is the amount that banks charge each other to borrow money. You should always aim to get an interest rate as close to the prime rate as possible.
A structured note takes the basic idea of a loan, where someone is temporarily providing you with money in exchange for a fee, and adds elements of an investment tool called a derivative to the program. Basically, it lets the bank modify the risk/return profile of the loan as economic conditions change, theoretically making the loan safer and more profitable.
A term loan is a loan with a set time to pay the money back. Most business loans will have what’s called an “intermediate term,” running somewhere from 3–5 years. You only want to go with a long-term loan, one that’s 10–20 years, if you’re making a major capital investment in the business, like building a factory…think of it like a mortgage for your business property or equipment. It’s usually best to choose the shortest loan you can afford—after all, you want to be done repaying that money as soon as possible and you want to limit how much you pay in interest so that you have more flowing into the business instead of to the bank!
Want to learn more about banking terminology and concepts? Check out the incredibly handy resources at Investopedia.
Free Business Loan Proposal Template
You can download a business loan proposal template here for Microsoft Word.
Download the business loan proposal example in PDF here.
Business Loan Resources
Be sure you know exactly what you’re asking for by using these helpful resources.
Business Loan Calculator
How much will your loan actually cost you, both per month and overall? Find out using this helpful calculator.
The Prime Rate is used to set the interest rate of various loans, including business loans. Get the current prime rate and see how it compares to rates over the last month and the last year here.
Check Current Interest Rates
What’s the current interest rate on the loan you’re looking for?
Looking for a bank loan? Check with your bank’s lending officer.
Non-Bank Loan Options
Want an option other than visiting your local bank?
You can also apply for loans through the U.S. government’s Small Business Association (SBA), which offers loans for entrepreneurs who are starting or expanding a business.
You can also look into peer-to-peer lending and online lending groups. Be sure to do your research first—the terms and conditions may be very different from what a bank offers, including super-high interest rates or pre-payment penalties. Reputable alternative financing options include Kabbage and Wave Lending.
In most cases, you’ll still want to prepare a full loan proposal just like you would for going to a bank, using the handy template we’ve provided. For SBA loans in particular, the process is really similar to applying with a bank—the agency wants to know that you’re a good risk. Brokers like Lendio and Kabbage aren’t as choosy, but their terms usually won’t be as favorable to you.
Small Business Loan Scams
Be careful when looking at loan options from places other than a well-known bank. There are plenty of unscrupulous businesses and people trying to scam you out of your hard-earned cash!
Here’s some of the warning signs:
- You get an unsolicited phone call / email / letter offering you a huge pre-approved loan. Real lenders don’t just offer money willy-nilly. You have to apply, prove that you’re a serious professional, and demonstrate that what you plan to use the money on has a real chance of succeeding. If someone calls you up and offers a $250,000 loan out of the blue, it really is too good to be true.
- There’s a processing fee. Many phony lenders ask for an up-front processing fee to consider your loan application. A real bank or other reputable lender won’t do this—you’re only charged interest and applicable fees after you’re given the loan. If you agree to pay an up-front fee (whether it’s called a processing fee, application fee, credit check fee, or whatever), odds are you’ll fork over the money and then the “lender” will vanish without a trace.
- There’s no physical address. Does the broker or loan company have an actual, real-world office, or just a PO Box somewhere? Be sure to check this. A supposed lender or broker that doesn’t have an actual street address somewhere could well be a scammer operating from somewhere else in the world, just using a PO Box to seem legitimate. Even online loan brokers have a physical office somewhere.
- You’re offered a cash advance. Cash advances are just as predatory for small business owners as they are for regular workers. It seems awesome to be promised ready money right now with no credit check or complicated terms, much less the need to write up a full loan proposal and business plan, but this great deal comes with some major drawbacks. Namely, the interest rate is usually horrendous—think paying back two or three times the amount of money you borrowed—and the conditions are awful (like having to pay the money back in just a month). It might be fast cash, but it’s usually not worth the strings attached.
- You’re promised a guaranteed instant approval. There are some lending services that offer very fast approvals, usually for relatively small loan amounts. But most of the time, “instant approvals” are bait used by scammers looking to get your Social Security number or other personal information so that they can scam you six ways from Sunday—and “guaranteed” approvals are always a scam, because any reputable lender wants to be sure to check that you’re a good risk before giving you any money! Be wary of handing out your personal identifying information or financial information to anyone, including possible lenders, and make sure you investigate them before letting them investigate you.
- You’re asked to pay to register with the Small Business Administration. The SBA doesn’t charge to consider a loan, get entered in the System for Award Management for federal contracts, or to be considered for other business help. Anyone who says that you need to pay a fee to work with the SBA is conning you. There are legitimate businesses that charge a fee to do the mounds of paperwork on your behalf, but keep a close eye to be sure that they’re not charging you a “registration fee” for supposed SBA services.
Create a thorough, professional loan proposal and get the money you need to grow your business.
For more professional business tips, read on:
- Starting a Writing Business: How to Structure Your Professional Author Career
- Expense It: 20 Smart Tax Deductions for Writers
- Clip It: How To Build a Professional Writing Portfolio