14. Quick Guide to Financial Proposals

Characteristics of Successful Entrepreneurs


Before you can approach any financial institution, you must have a clear idea of the financing you are looking for. Here are some things to consider:

    • What will the financing be used for? Purchase fixed assets, working capital, refinancing, change of ownership (shares or assets)?
    • Most importantly, how will the project benefit the business? Can this benefit be quantified (i.e., increased market share, sales growth, increased profit margin)?
    • How much do you need, are the costs firm, and when do you need the money?
    • Has a contingency reserve been established? A contingency reserve is a portion of retained earnings set aside to protect your business if the project goes over budget.
    • What type(s) of loans are required (demand, term, mortgage), for how long and on what terms?
    • How much is the client willing to personally invest in the project?
    • What are the other sources of financing for the project, if any? Other sources of funding could include working capital, other lenders, government grants, the seller (balance of the sale), deferred, or postponed loans?


If you know what financial institutions are looking for, it is much easier to present a solid and persuasive case in support of your loan application. Generally commercial financial institutions will use the following four criteria to assess the proposal:

1. Management team (owners/partners, executives and/or managers):

    • What is management’s background and experience? Do you have knowledge or experience in the industry?
    • Does the management team have the collective knowledge, skills, and experience to find success?
    • Can management successfully plan the future and identify the resources required?
    • Is there continuity of management and a written succession plan?
    • Do you have references that can attest to the abilities, character, and adaptability of the management team?
    • Has management dealt with this financial institution before?

2. Ability for your business to meet its obligations:

Financial institutions can only lend to businesses that they believe will generate sufficient cash to meet their financial obligations. Some examples of financial obligations are debt-instruments (loans), replacement of fixed assets required to operate your business (plant and equipment), and additional cash that can be used as working capital.

    • Does the financial institution have confidence that your business will be successful, based on your evidence?
    • What is the payback period of the new project? How long will it take for the debt to be fully repaid?
    • What is the historic performance of the business and how does it compare to industry standards?
    • Are the forecasts reasonable based on historic results and current industry and economic trends?
    • What is the consistency and sustainability of cash flow, debt service and working capital requirements?

3. Investment:

Financial institutions want to see that you are committed to the business through capital and time investment, so they can reasonably believe that you will continue to operate the business in times of difficulty and be working towards overcoming any challenges that may arise. Some considerations are:

    • What personal investment are you making in the project?
    • When is the investment available?
    • Do you have access to additional resources?
    • Is there sufficient equity in the business?
    • What are the other sources of investment available (grants, subsidies, third-party investments)?

4. Security:

Financial institutions will look for security within your business that can reduce their risk of lending. Security reduces the risk because the financial institution can liquidate the security to recover some or all the loaned capital. Some questions to consider about security are:

    • What security is available to support the loan? Some examples include accounts receivable, inventory, equipment, machinery, furniture, land, and buildings.
    • What is the age and condition of the security? Are there other factors which may affect the value of the security, like advances in technology, changes in zoning, or implications on the environment?
    • Are there professional appraisals to back up the value of the security?
    • Are the securities easy to sell in the event of default?
    • Do other lenders have claims against the assets listed as security?
    • What personal and/or corporate guarantees are available from the business?
    • What are the means of the guarantors to cover their guarantees?

5. Environment:

    • How does the business or its business practices impact the environment?
    • Does the land, plant, or equipment being purchased have any environmental risks?

6. Lending Policy:

    • Are there lending restrictions on providing loans to specific higher risk industries, types of businesses, or industry sectors?


Not every financial institution is the same, so check with yours on what information they require. However, many like to receive a complete and concise business plan. This would typically include an executive summary, description of the company and operations, management, marketing plan, production plan, human resources plan, and detailed financial information.

The proposal can include the following financial information:

    • Statement of personal net worth for all major shareholders
    • Financial statements for the past two years (if existing business)
    • Interim financial statements (include same period for previous fiscal if available for comparison)
    • Monthly cash flow forecast for at least two years
    • Financial sensitivity analysis (which outlines the best-case, realistic, and worst-case scenarios)
    • Aged listing of accounts receivables and payables for last year-end and most recent interim (if existing business)
    • Forecast of income and expense for two years, including assumptions
    • Consolidated financial statements, where applicable

Other information may be requested, for example:

    • Purchase sale agreements
    • Lease agreements
    • Cost estimates for equipment, construction, etc.
    • Plans, drawings, specifications, etc.
    • Building permits and licenses
    • Contracts with buyers
    • Land survey plan
    • Appraisals (land, building and equipment)
    • Detailed list of assets (land, building and equipment)
    • Breakdown of sales by product category
    • Inventory summary listing
    • Management resumes


Now that you are clear on what financing you require, what the financial institution looks for in applicants, and what information may be relevant to prepare, it is time to create your proposal. An effective proposal will:

    • Present one idea. The financial institution prefers one clear idea versus many vague and unrelated possibilities.
    • Focus on the information that the financial institution needs to know. You can share more information if asked.
    • Write simply and present your case – put yourself in the financial institution’s shoes.
    • Back up your proposal with facts and include such reports as appendices.
    • Time is of the essence – a short and concise proposal will be more likely to elicit a timely response.
    • Your proposal should look professional to provide the financial institution with a positive first impression of your company.
    • Demonstrate how you will repay the loan. Your forecasts should prove how the project would be profitable for both you and the financial institution.
    • Demonstrate how you will succeed. Show how you have considered all relevant factors and have a contingency plan established. Also indicate how your previous successes or experience will help with the current project.


At this stage, you have everything you need to present a compelling case to your lender. Remember, the financial institution is a partner in this transaction, not an adversary. Consider these ideas to more effectively work with your financial institution:

    • Work with your financial institution – you are both on the same side.
    • Financial institutions are cautious and conservative – therefore full disclosure is required to maintain confidence and trust.
    • Arrange your borrowing needs well in advance, to demonstrate your ability to effectively plan for future growth.
    • Have supporting documents and other information readily available.
    • Prepare a convincing and complete proposal – sell yourself and the potential of your business to succeed.

Ready to learn more?

Check out our New Business Checklist to find more helpful resources and considerations for starting a successful business.