Facing the stern banker holding the future of a small business in his hand can be an intimidating experience. The key to getting the loan approved is preparing a killer loan package.

Business Plan

The business plan is the most important component of the loan package. A comprehensive business plan outlines exactly what the company intends to do, how to go about it, and how it will fit into the market. These are typically 10 to 20 pages long (depending on the complexity of the business) with a one-page executive summary at the beginning that includes a statement of purpose, startup costs and projected earnings.

Start with a mission statement outlining the overarching goal of the business, then proceed to describe the flow of business from A to Z.

Examples of questions to answer in the business plan include:

• What products or services will the business offer?

• What equipment and/or inventory will be acquired?

• Where will the business operate?

• What will the opening hours be?

• How many employees are needed?

• What licenses and permits are required?

• What are the daily, weekly and monthly management routines?

• What is the potential customer base?

• How will the company attract those customers?

• What pricing structure will be used?

• Will there be an online component of the business? If so, how will that tie in with the physical business?

There are free websites and software such as Plan Write or Business Plan Pro that can help startups write compelling business plans. There are also consultants specializing in writing business plans, although they usually charge for their services. The Small Business Administration (SBA) offers free educational videos on how to compose good business plans.

Competitive Analysis

It is important to include a competitive analysis. What is it that makes this business more successful than others? What can this company do that the others can't? How will customers be convinced to stay faithful and conduct repeat business? Be sure to include online competitors in the analysis; it's not enough to compare to the brick-and-mortar stores nearby.

Contingency Plans

Also, be sure to include contingency plans. Will the company survive a low-cost chain opening shop next door? What happens if a proposed new industry regulation is passed? Can the company survive a lawsuit? How will the business handle upstarts using the same business model, should it prove successful? Bankers don't make their careers by granting loans to rising stars; they do it by not approving loans that go sour. Gain trust by preempting the lender's concerns.


Projections for cash flow, balance sheet, and both startup costs and ongoing operational costs should be clearly spelled out in pro forma statements. These costs include the cost of inventory, wages, benefits, licenses, permits, rent, insurance, lease, office materials and whatever else is applicable. This provides a natural segue into the size, purpose and nature of the loan asked for. The question is not how much you can get, but rather an outline describing a specific amount needed to accomplish A, B and C. The proposed repayment schedule is of great interest to the lender, so put a lot of thought into how quickly the loan can be repaid realistically.

Break-Even Analysis

The break-even analysis explains exactly at which point the company will have sales/earnings to match expenses.

Personal Financial Statement

A personal financial statement gives the lender an idea of what the borrower brings to the table. This statement should include a recent credit history snapshot along with a list of personal assets and current debts, plus additional income sources during the startup phase. It should state the level of personal investment into the business.

It is a myth that lenders are willing to give money to someone with no personal stake in the business; the lender will demand that the business owner put up some cash, property and/or sweat equity to approve the loan. By the same token, the greater the collateral, the less risk for the lender and the higher likelihood of approval. Be sure to include a written appraisal of the collateral.

Other Documents

Finally, the lender will provide a list of documents needed to process the application. These documents should be included in the loan package, double- and triple-checked for any possible inaccuracies.

Organization and Presentation

The loan package contains a lot of paper, so good organization is vital. Use a high-quality binder of a size that suits the documents inside. Put the company name and contact information in large print on the cover page. Divide the material into sections, use a color-coded table of contents and use matching colored tabs to keep things manageable.

It is also a good idea to scan and save the loan package in digital format on a DVD or memory stick. This enables the loan officer to send all or parts of the material to other departments of the company, should he need to discuss some aspect of the loan with a colleague or get approval from a supervisor. Keep it neatly organized in folders using the same naming structure as the table of contents. Mark the DVD or memory stick with the company name and contact information.

Have someone else proofread everything before seeing the lender. It is easy to get blind to something big after spending hours brooding over the small details.

Other Factors

In the end, the biggest determining factor will be the character of the borrower as seen by the lender. That is why it is advantageous to approach a bank with an established relationship, even if you have never talked to anyone in the small business department. The banker that you have met once a year for a decade regarding your mortgage and retirement account will be happy to attest to your reliability and dependable character, making his small business colleague more receptive.

It also important to check your personal credit history for potential errors well ahead of time. It can take several months to clear a black mark no matter how obviously erroneous it may be.

Don't underestimate the importance of personal appearance at the meeting with the lender. Dress as if the business is already up and running successfully.

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