By Joseph Pisani
If you are in the process of buying a franchise or have plans to expand your existing location, chances are you will need to seek some level of financial assistance. In most situations, this scenario will require you to submit an application for financing to your local bank. It is important for you to know in advance what the bank will expect to see in your application and what evaluation criteria will be used in assessing your application.
It is quite common for small business buyers and owners to experience some hesitation or even frustration when preparing their financing requests. Some are not sure as to how best to go about it, including how to communicate what is needed in the application. Others do not even know where to start.
A well-developed financing proposal should address the key points put forward by the banks and the marketplace through their own publications and brochures. All major financial institutions provide information on this subject and some materials even include examples of what details should be included and how they should be presented. There is no need to guess and, for that matter, no excuse for not being aware of what the banks expect.
The financing proposal
In very general terms, a bank financing proposal is a written document or presentation used by the potential borrower to convey the following details to the banker:
- An outline of the business activity.
- The amount of money required and from what sources.
- How the money will be used.
- How it will be repaid.
- What financial return the banker may expect on the business.
- What security will be provided.
While all such financing proposals are addressed as soon as possible, your banker is likely busy dealing with a number of them concurrently, so it is in your best interest to keep your proposal simple and factual.
If you honestly recognize in the proposal any downsides the business may entail, for example, this will help illustrate you are aware of relevant risks and how to manage them.
You should include a succinct, one- or two-page summary that briefly describes your business, its history, where its future lies and the money you require to get it there. These details can make a strong initial impression on your banker and help set your proposal apart from others.