It’s a fact: Lenders only fund loans when they’re comfortable that they’ll be able to collect both the principal they lend and the interest they charge. The degree of comfort they feel dictates how much they’ll lend and the interest rate they’ll charge. Your loan package must convince them that your request meets their criteria. Which is why getting it right is so crucial!
The Key Elements of a Successful Loan Package
If you can provide the following items in a way that will make the lender agree the loan makes sense, you’ll be able to secure the loan at a reasonable interest rate, with payment terms and loan covenants that you can safely satisfy. But if you’re missing any of these elements, or if they don’t point to your ability to repay the loan, then you’re not likely to have much luck obtaining funding at all.
• Business plan & projected financials – You can help yourself get the best loan by having a solid business plan that forecasts revenue and expenses for the desired loan period. This plan must show where your company has been and where it is going in terms of sales growth, business opportunities and more.
Your projected Profit & Loss Statement, Balance Sheet and Statement of Cash Flow provide the numbers that support your plan. Each of these financial statements should be presented on a quarterly basis for each quarter of the desired loan period.
• Current financials – In addition to the projections, lenders also want to see your current year’s financials, which serve as a benchmark.
• Narrative – Your loan package must clearly show why you need the money, and when and how it will be paid back. While the numbers should do much of the “talking,” if you don’t already have a relationship with the lender it’s best to include a page or two that lays out the assumptions and provides a top-level view of your company and plans.
• Extra explanations – In addition, be sure to provide more information for anything that might be a potential red flag. For example, if you’re projecting 25% revenue growth in an industry that’s flat, you need to explain how you will make this happen.
Need help with any of this? With over 30 years of experience, I know what lenders are looking for when they’re considering loaning money to companies like yours. Give me a call. As your part-time CFO, I’m here for you!