Understand, the core business of any bank is lending. If they want to make revenue and profit, they have to lend. Lending is the core activity and lending decision is taken based on the loan proposal submitted to the sanctioning authority.
When you submit a loan proposal to sanctioning authority, you should capture all essential information about the borrower, so that, sanctioning authority will be able to take very calculated decision . They can conclude whether they should sanction or reject. That's the importance of Loan Proposal.
In some banks it will be called as appraisal memorandum or appraisal note. This loan proposal in general will have two parts.
Part 1 - Executive Summary (Birds eye view of entire proposal - as proposal generally run for 40 -50 pages.) running for one or two pages will give overall view like Credit facilities asked, core activity, how their financials are, what pricing they are asking for credit facilities, what are the justifications, etc.
To know more, view this video lecture.
Note: This video lecture is part of course:
How to Write Bank Loan Proposal