“Ask the Business Counselor” Article
Business Loan
by Bend Business Development Center at Central Oregon Community College
I am looking for a way to expand my small manufacturing firm. My banker wants a loan proposal. What does this include? Builder in Bend. Dear Builder, Obtaining a loan for an existing small business can sometimes be very difficult. It is even more difficult for a new "Start Up" company. It is, however, usually possible to do so if the owner or prospective owner is willing to follow some basic steps. Quite frankly, the recent epidemic of bank mergers and the resultant streamlining of some local banking operations has not made the process any easier although in most cases it has cut down the processing time involved. The prospective borrower should realize that small business loans are considered "high risk". Lending institutions, therefore, almost always require the pledging of personal property by the owner as collateral. The U.S. Small Business Administration and the Oregon Economic Development Department offer Loan Guarantee programs which lessen the risk to lending institutions and thus encourage them to grant higher risk loans than would normally be practical. The first step to obtaining a loan is the creation of a "Loan Proposal" which consists principally of a "Business Plan". The "Loan Proposal" must be a selling document with its main purpose to give the prospective lender confidence that the business is or will become financially successful. To be successful a business must be profitable, have positive cash flow, provide an adequate return on investment, show a strong balance sheet, and perhaps most importantly have longevity and value beyond the present owner. The "Loan Proposal" should first state how much money is being sought and how it is proposed to use the funds. If equipment is to be purchased specific quotes from the manufacturer or supplier of the equipment should be included. Enough working capital should be requested to ensure that the business will have enough to operate successfully. It is important to show how the loan will be repaid so a cash flow projection for at least the next three years must be included. Of particular interest to the lender is the "Balance Sheet" which must show all of the business's assets balanced against its liabilities by the owner's equity. Most lending institutions want to see an owner's equity of at least 20 to 30 percent. The owner's personal financial statement along with copies of his or her tax returns for at least the last three years plus a description of background experience in the field of business involved should be included. All of the above should be neatly packaged and presented to the lending establishment chosen. Business loans, when granted, are normally for no longer than 5 years and interest rates are usually higher than loans for non-business purposes such as the purchase of a new car or truck. At the COCC Small Business Center we specialize in helping small business owners or potential owners to prepare "Loan Proposals". We are located at 63085 N Hwy 97 in Bend and our phone number is 383-7290. |
