NFIB

The Most Important Part of a Loan Application: The Brief Statement
01/ 08/ 2004

by Jeffrey Moses

There are rules for writing marketing pieces, including direct-mail letters, media ads, telephone sales scripts and others. One of the cardinal rules is to let the customers know as quickly as possible what you're selling and how the product could benefit them. If these two items aren't clear, readers will become confused and their attention will go elsewhere.

If you think about it, you'd probably agree that a loan application is very similar to a marketing piece. The structure and purpose are essentially the same. For this reason, every loan application should begin with a clear and concise description of four things:

1. How much money you want to borrow.

2. What the money will be used for (uses of the proposed finances).

3. Over what length of time your company will repay the loan.

4. How much of its own money your company is going to put into the venture.

When a lender reads everything that needs to be known about these four items, the remainder of the application becomes merely an explanation of how the loan will be repaid (collateral, proposed marketing and operations, projected cash flow, etc.).

But if these four points are not clarified right from the first paragraphs of an application, a lender won't be oriented about the company's needs and usage of funding. In fact, the lender may look upon the entire application as unprofessionally put together if the opening statement is not clear and complete.

The statement about the loan request is like a summary paragraph. It doesn't have to be fancy, just exact. Examples are:

"Company XYZ is requesting $100,000 for the purchase of new equipment as described below in this application, to be repaid in full over five years. The company will be using $25,000 of its own funds for this purpose, in addition to the requested $100,000."

Or: " Company XYZ requests $45,000 for the purchase of a parcel of land adjoining the company's present location, to be used for storage and future expansion, to be repaid in 15 years. The full price of this parcel is $52,500. The company will be adding $7,500 of its own, in addition to the requested $45,000."

These statements, and others similar to them, tell lenders exactly what they need to know before starting to read and analyze the main sections of the loan application. When a loan doesn't have such opening statements, or when statements are vague, lenders suspect that the company presenting the application did not prepare the application professionally.

Examples of vague opening statements are:

"I am planning to carry a new line of products and need extra money for their purchase."

"I can use as much money as you feel you can lend me."

"I am now formulating plans to expand my business, and need to know how much money you can lend me when I finalize my plans."

"In the case that my other sources of funding do not provide all the money I require for my new business, I'm requesting funding from your bank."

Clearly, these vague and essentially unprofessional opening statements would not present your company in a positive light to lenders. Yet, experienced lenders have probably heard all of these, in one form or another -- as well as others even more vague and unprofessional.

Work with your business adviser to create a strong, detailed and specific opening to your loan application. Then build upon it in all remaining sections of the application.

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