- Before you understand how much to bring to the table for your loan proposal, you must understand what you are doing and how the loan fits into its financing. Within your business plan, you should have a table summarizing your project costs. These costs include the money necessary to organize, market and implement your project whether that is starting up your business, launching a new product or expanding your current operations. The total sum of your project costs will be the amount of money needed to make your project operational.
- Loan financing should only be a portion of the total amount of money you need. Personal savings, retained earnings, venture capital, grants and friends and family are additional sources of financing. A good mix of these sources will alleviate risk for all sides.
- A bank will expect you to contribute 20 to 40 percent of your project costs. This equity can be in the form of cash, real estate, equipment or other assets you will personally provide for the project. Intangible expenses related to the project already purchased, such as patents or organizational costs, can be proved with receipts. Equity can be provided by you alone or in combination with other investors, grants or low-interest, subordinate loans. Existing businesses will need at least this amount of equity already in the business.
- Any owner of 20 percent or more of the company will be asked to personally guarantee the loan. Personal credit and collateral will be analyzed in this regard. Payment history on credit accounts and the amount of debt you have will demonstrate your fiscal responsibility and provide a gauge for how the new company debt will be paid. Collateral will be an important piece of your loan proposal as a safety mechanism in case you are unable to repay. Equity in your personal residence is the most commonly requested form of collateral. Company real estate, valuable equipment and other business assets may also fit this need.
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