By Carolyn Riegler, CPA/CFE and Stephen Weber, CPA/CFF/CTA

When seeking a loan, it pays to have a strong loan package to present to lenders, literally.  Providing complete, accurate, and detailed information at the start of the process will give your deal a head start along the road to approval.  It will also demonstrate to the lender that you, the borrower, have strong organization and management skills.  In other words, you would be a reliable borrower who is likely to repay the loan.

But what constitutes a strong loan package?  Here are the critical components to include:

1. Company Background – The history of the company and notes regarding operations and significant customers and events.
2. Management Background – Brief bios on owners/critical managers and their education, experience, and history with the company.
3. Summary of Loan Request – A write-up about the purpose of the loan, the expected use of the proceeds, and how it will be repaid.
4. Projections – Cash and income forecasts that take the loan into consideration and show how your business will improve as the result of it. The projections must be reasonable and supported by the Key Assumptions.
5. Key Assumptions – Summary of the assumptions used to prepare the Projections. These assumptions must be reasonable, fact-based, and supportable.
6. Supporting Documents – Any additional documents related to the loan request such as: CPA-prepared financial statements, tax returns, appraisals, and budgets for new construction or machinery. Additionally, support for the Key Assumptions should be included.

It is important that you as a prospective borrower do your homework prior to contacting the financial institution for a loan.  By having all of the facts in hand before the request, you will be better able to follow up on requests for additional information.

Great care should be taken with the presentation of any financial information to the bank.  All financial statements and tax returns must be accurate and clearly present the financial position of the business.  Errors will be perceived by the bank  as a lack of managerial control and oversight that will increase the bank’s risk.

It is especially important to exercise due care in the presentation of any kind of forecast or projected financial information.  The assumptions used in the projections will critically impact the results presented.   The underlying assumptions must be grounded in reality.  These assumptions and forecasts should be stress tested to demonstrate that the loan can be repaid even if actual results vary from the expectation.  For example, if your business is seeking a loan for new equipment to expand their manufacturing capacity, show how the additional capacity will be utilized through the acquisition of new customers.  If, traditionally, the business grew at 6% per year, evidence must be supplied to support a post-loan growth rate of 12%.

By taking the time to gather the necessary information to prepare a strong loan package, a borrower can help ensure their success in obtaining a loan for the project and repay it according to terms that they helped generate.