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Your lender or investor must have the information at hand to approve your loan request. Remember
that while you are totally familiar with your company's daily operation, your banker doesn't until you show him (for
simplicity, the male gender will be used although often not the case). You show him by preparing a package of information
which will be nicely bound for presentation. Not only do you have to sell the banker on your needs -- he
must usually take this same information to a loan commitee for approval and it is essential you answer any potential question
in your presentation so he can re-sell it to the committee.
The loan may be conventional or backed by the Small
Business Administration or other government agency such as the United States Department Of Agriculture's Business and
Industrial Loan Division. While the government backed loans contain additional special forms they specify for inclusion,
the information needed remains essentially the same. A good financing package must contain at a minimim the
following sections:
1. Title Page Addressed To The Lender.
This one page section should include name and address of the receiving bank as well as name and address of your
company along with contact names, telephone numbers and email addresses.
2.
Executive Summary. This is the time to adequately describe your company and the business you are in. Include
facts such as your business structure (C-Corp, S-Corp, LLC,Proprietorship, etc.) and where your offices are located.
How long you have been in business. Your original goals and where you are in relation to these goals. Names of
the principals and their function in the company. How many employees at present and how many should be added in the
near future. A complete description of exactly what your company does to generate revenue. Compare yourself to
other similar companies if possible. Who is your competition? Is the competition vulnurable to you and why --
do you fill a particular niche they are not servicing? Briefly state your anticipated growth in the near and long term
and how the loan requested relates to that. Important: Make very sure that what you say in the
Executive Summary in words exactly matches the forecasted financial statement numbers presented within this package.
Do not say "We will grow sales 10% per year and then present forecasted income statements showing 30% per year revenue
growth.
How long should the Executive Summary be? This is not the place to write a book. The information
should be as brief as possible, but adequate in length to insure the lender knows exactly how you operate. Generally,
this section will be 4 to 8 pages in length.
3. Resumes Of The Principals
In The Business. Anyone involved in the business whether an owner or employee who lends expertise through
their job descriptions should be included here. Unquestionably, owners with 20% or more ownership in the business should
be included regardless if they work daily in the business or serve in an advisiory capacity. Also, any non-owner employee
or officer who performs an essential job function necessary to the business should also be included. Note:
If possible, avoid lengthy dates of employment and job descriptions if not related to this business. Your lender wants
to know how much background this person has in relation to the function he (she) now performs in your business.
4. Actual Financial Statements. The most recent statements available should be included, but
in no case should the statements be more than 90 days old. This should include a balance sheet and income statement
as of the same date. Make very sure of accuracy of the statements. If you have posting errors in using your accounting
software, do not give statements to the lender with mistakes. Your CPA or consultant should be able to quickly determine
the overall correctness of the information before you include them in the package. Discrepancies in your accounting
will turn off your banker for good. It is an indicator you do not know or care about your own financial operations.
5. Forecasted Financial Statements. You should provide forecasts
or projections of your company's financial position for the next 3 years at a minimum. The Income Statements and
Statements of Cash Flow should be presented monthly for the entire 3 years. A forecasted Balance Sheet should be provided
at the fiscal year-end for each of the 3 years. This is where your lender will determine adequate cash flow for repaying
your loan. The assumptions must appear reasonable and the results obtainable. Remember to make a statement of
the assumptions used in making these forecasts. For instance, if your average receivable collection period is 80% in
the current month and 20% in the following month, make sure the numbers reflect this assumption in the cash flow statements.
This will become the largest section of the proposal. Note: Bankers are cash flow lenders and
the collateral assigned is for back-up in case the cash flow does not remain adequate. For this reaon, your lender wants
to feel comfortable with your forecasts and projections.
6. Tax Returns.
Your business tax returns for at least the two prior years -- if you have been in business that long --
should be copied and inserted in this section. If you are a start-up company, the prior tax returns of the principals
must be included. It is a good idea to also include the personal tax returns on anyone signing and individually guaranteeing
the loan even if you have business tax returns included. I would like to make a most emphatic statement here; DO NOT
give your tax return information to the banker and make the statement "We showed $X in revenue to avoid paying taxes.
We really did $X plus." You might as well wear a t-shirt saying "I can't be trusted" to the presentation.
7. Other Data. Copies of leases, proof of collateral values
(appraisals), letters of testimony from major customers and any other supporting data should be placed in this section.
Again, this is the minimum information necessary for your banker to approve your loan request. Your particular
business may have additional, but not certainly not less, information to be provided. Presentation in a good 3-ring
binder is a good idea so that you can easily change information within sections when necessary.
One other
quick definition before you depart on your loan quest. Existing companies may have either forecasted financial statements
or projected statements included. If you have ever wondered what the difference is, here goes; If you have been
in business long enough to determine trends in revenue growth, collection periods, timing of hiring additional employees or
a myriad of other balance sheet, income statement and cash flow statement items, you have good reason to reflect these ongoing
trends into the future. Therefore, greater reliance can be placed on your assumptions and your future statements can
be called "projections". However, when you use the terminology "forecasts" the implication (and
reality) is that the items are solely based on management's best estimates of what will occur. In other words, projections
have more predictability affixed to them than forecasts, but if you are a start-up company or have been in business less than
two years, yours are definately forecasts.
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