Figuring out the financing

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Jun 01, 2005

Here's a news flash: Bankers think a lot about risk. But it's hard to blame them really. You'd want to check Joe Smith out before you cut him a check for $1 million, right? That's where a financing proposal comes in. Your proposal will help a potential lender assess the risk you pose and should cover these key areas:

  • Proposal summary. This quick introduction should include the borrower's name; address; phone number; Web address; type of practice; amount, type, and purpose of the loan sought; repayment terms and source of repayment; proposed security or collateral; and contact information for the point person concerning the proposal.
  • Management profiles. Your bank would like to know cold, hard facts about everything—including the quality of your management strategies—but in some cases the facts can be tough to come by. The next best thing: Gather the information you can. For example, you could share industry averages and other research data. And you can help support the case that you've got strong managers by giving some background about the people who own and run the practice.
  • Practice description. You want to make the lender as comfortable as possible with your practice and the great work you do. Include information on your legal structure; type of practice; products and services; practice history; current and potential growth; market description and position; trends in practice sales and net income; marketing and pricing methods; main suppliers and credit terms; number of employees; type of employees; expected employee growth through loan received; and a summary of practice goals, objectives, and challenges.
  • Specific information about the loan requested. In this section include the size of loan relative to the size of business, the intended purpose of the loan, the loan term, your repayment plan, and the collateral available.
  • Current and past practice financial statements and information about your financial future. You'll also want to talk about your debt-to-equity ratio and the practice's liquidity. Could you sell if you had to? Could you sell your assets in case of liquidation?


Gary I. Glassman, CPA
The bank will also want to see past and future profit trends and data that show the stability of practice profits. This is a good place to talk about your past relationship with the banker (if you've had one), your loan activity at other banks, the potential for profitable future relations with the borrower, and the size of the deposits you expect to make.
  • The practice owner's personal financial statements, including personal tax returns for three years. Among other things, this shows the rate of return the borrower earns on assets.
  • Practice tax returns for three years. Your banker will use all the data you provide to calculate the risk of default. The tax returns help build the case that you can pay back the loan, and they support the trend data you supplied about practice profits.




If the practice has a business plan, include it in the proposal. If you don't have a plan, at least incorporate relevant information, such as the description of the business and management.

Some lenders request that applicants complete standard loan packages, which may vary somewhat from the contents I've recommended. You won't need to fill this paperwork out until you decide to move forward with a certain lender.