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The purpose of this section is to tell the lender how much
money the business needs, the purpose, and generally how the loan will be
repaid. Collateral should also be described along with its value.
Example:
In submitting this loan application, ABC Company is requesting a loan for
$120,000.00. We anticipate repaying the loan over a 7 year period with payments
of $1,870 a month. The proceeds will be used as follows:
| Additional Inventory |
$80,000 |
| Accounts Receivable |
$20,000 |
| Refinancing Existing Debt |
$10,000 |
| Delivery Vehicle |
$7,000 |
| Purchase Computer |
$3,000 |
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| Total |
$120,000 |
Collateral
ABC Company will pledge the following for collateral:
| All inventory |
$60,000 |
| Building |
$100,000 |
| Misc. Equipment |
$20,000 |
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| Total |
$180,000 |
ABC Company owners will also pledge the following personal
assets:
| Personal Vehicles |
$15,000 |
| Certificate of Deposit |
$2,000 |
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| Total |
$17,000 |
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| Total Collateral |
$197,000 |
Loan to Value 120,000/197,000 = 61%
The above loan request scenario is for a long-term loan, but can be adapted very
easily for a seasonal line of credit. Please note that all financial sources and
uses of cash will be explained in detail later in the business plan.
The collateral section will tell a lender how ABC Company plans to secure the
debt. A lender will want to know what kind or types of collateral will be
offered and its market value. Even if a business needs working capital there
needs to be collateral to secure it. Remember that certain collateral
appreciates or depreciates while other collateral retains its value.
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