What Is a Loan Proposal?

M. McGee

A loan proposal is an official business document used to request money from another individual or group. These proposals are a lot like a standard business plan, but they often have more descriptive information and less overall detail. While there are often several parts to a loan proposal, they are generally broken down into three areas. The narrative tells about the business and its history, the description outlines the financial aspects of the request and the documentation section contains information that supports the first two sections.

Loan proposals generally consist of three basic parts.
Loan proposals generally consist of three basic parts.

Using a loan proposal is a common way of securing capital for a new or existing business. A complete document will contain a lot of information and take significant effort to put together. These documents should be custom-tailored to the potential lender, but large amounts of the information can be simply copied over.

Small business owners typically have a business plan, or loan proposal, when pursing financial assistance.
Small business owners typically have a business plan, or loan proposal, when pursing financial assistance.

These documents consist of three basic parts; the first is the narrative section. The narrative in a loan proposal is used to describe the history, owners, environment and methodology of the business. These sections are generally less formal than common business documents as they will often contain information about personal choices, goals and dreams for the business. The second part of the narrative will discuss what the loan will bring to the business, and the direction the borrower hopes to take in the future.

The second basic part of a loan proposal is the description. This section will break down the financial aspect of the loan. This will include information about the current financial status of the business, other confirmed investors and the amount and rates of the requested loan. This section is often the most formal part of the document as it deals directly with the money.

The last section is for documentation. This section will contain business and tax records, proof of sales and proof of income. Basically, this will support any hard facts brought up in the first two areas.

Even though the loan proposal is only made of three parts, they will rarely be kept as three sections. Generally, these documents are broken up to provide a more complete and richer reading experience for the lender. The proposal will start with several short sections that act as an introduction. These consist of a narrative cover letter, a descriptive financial summary and photos or demographic information for the business’s location.

The bulk of the loan proposal will follow a similar pattern. It begins with the first section of the narrative and then goes into the financial information. Following the hard numbers are documents, typically tax information, which supports the preceding numbers. Next, the narrative continues with the goals and future of the business, followed by repayment and return-on-investment details and more supporting documentation.

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