When you’re running a business, there can be any number of reasons why you want to apply for a loan. Be it for expanding your business, increasing the number or pay of your workers, or simply getting new equipment — financing is an important part of any business expansion.
For many businesses, loans are a primary source of larger money influx in the beginning stages. Even though writing a business loan letter sounds really difficult, let me ease your mind: it is not. Even though it is not so hard to write, it doesn’t make it unimportant since a great business loan letter can make or break your chances to get the loan.
The business loan letter is supposed to be simple and kept brief. Outline of the letter should include:
- Sum of money that is needed
- What will the loan be used for
- Ways to fund the loan payback
- Additional ways to repay if you can’t finance the loan back
It feels natural to write it this way since it highlights all the points of interest. The first one is, of course, the sum of the money you need, which is self-explanatory. Larger banks might dismiss smaller businesses, but some smaller ones will even lend to startups. How much you need will likely determine the bank you’re going to be applying to. Make sure you prepare, analyze and finally come up with a realistic number that’s in line with your business’ predicted cash flow.
Banks usually have costs that are approved and not accepted. Stating that you will use the loan for accepted costs like opening a new venue will greatly increase your chances, unlike saying that money is for casual Friday buffets. Always write from the perspective of the banker who will approve or deny your request. If you were in charge of managing risk at a bank, how would you approach the notion of an acceptable or unacceptable cost?
With successful business practice comes a liquid cash-flow that ensures you will pay the money back. Advisable business practice is that you should not loan money that you can’t pay back since it comes with significant interest rates. Even though it might seem tempting to get as much money as you can, stay realistic and apply only for a sum that you can pay back even in a pessimistic scenario.
The last point is there to reassure banks that even if your business venture goes array, you will provide additional payment sources possible. Those can include your own assets or guarantors. This is an important aspect of your business loan letter from the bank’s perspective because it reduces their risk. This is why it should be especially emphasized in your business loan letter.
No Need for a Business Loan Request Letter?
Even though it is not so hard to write a proper business loan request letter, there are instances where you don’t need one. These include requesting a term loan from an online lender, looking for a loan to finance equipment since that equipment will be seen as collateral, and if you are asking for a line of credit for your business.
These instances might require business bank statements and recent financial statements. However, it’s always recommended to include an explanatory letter even if you are not required to do so. This will promote better transparency between you and the lender and make sure your communication starts on the right foot.
When to Write a Business Loan Request Letter
A loan request letter is not needed for every type of loan. There are 2 types of loans where you need to have the letter for:
- SBA loans
- A loan from a conventional bank where you want to show your financial growth
While having a loan request letter is needed, for these types of bank loans, you might need more proof of positive business credit and a high-quality financial plan. Helping your future lenders see how your business is solid and has no red flags might just sway the odds of getting the loan in your favor.
Prepare financial statements, credit scores and add them as support of your loan request letter. Financial statements you should include are an income statement, balance statement, and cash-flow statement. Throughout your business loan letter, use facts and figures that the reader can easily find and check in your other attachments.
It’s always best to invest in professional business loan letter writing services. You can reach out to platforms like Online Writers Rating who can craft your business loan letter for you. Just make sure you provide ample details and instructions for the writer to work with.
Finally, you can also use business loan letter templates and step-by-step instructions like these to get started. Many banks will also provide their own business loan letter form.
The Format of a Business Loan Request Letter
Everybody wants to bring their point across as precisely as possible, but keep in mind that the format of your letter should be brief and easy to understand. Having a letter that is longer than 1 page might dilute your key points. It’s similar to a concept of a resume: you want to get all key points across, but you have to keep the reader in mind, who reads dozens of these every day.
So, to write a proper business loan request letter, we can split the anatomy of a good, clear letter into 6 parts:
1. Heading of the letter and polite greeting
This part of the letter is similar to any formal type of letter. It includes your name and contact information, date of the letter, name and contact information of the loan agent you are sending the letter to, and the point of sending the letter, stating a subject line with a specific amount of money you are requesting.
The greeting part comes after the subject line and is the starting point of the letter. It can be the usual To (title)(name) or Dear (title)(name). You can also use To whom it may concern if you don’t know the name of the person who’s going to be reviewing your application.
2. A brief summary of why you need the loan
Seems self-explanatory, but it serves to start working on the point of writing the loan request letter. It is expanding the subject line and states the purpose of writing the letter and specifies the amount.
3. Information about your business
After starting the letter and briefly sharing what you request, you should write some information about your business. That includes your company’s name, what type of company it is (partnership, sole proprietorship…), how many years and how many people your business employs, and of course, what your business actually does.
Another key point of interest that needs to be included in this part of the letter is your business’s annual profit and revenue.
4. Explaining what the loan will be used for
This is the part of the letter where you expand on your goals of what you want to do with the loan when it’s granted. Depending on your business and your goals of what you want to achieve with the loan it can vary what you write here. But key points to take away are to keep it specific, use quantifiable factors like numbers for your goals, explain the ways that the loan will improve your business.
5. Make sure to convey ways of paying back the loan
Now we have the information on what we will do with the business loan, and we have to convey our ability to pay it back. Fortunately, we can use proof of our previous loan payments that are successful, manifesting cash-flow projections that show we will budget in repayments, and quick summaries of recent balance statements.
6. Concluding elements
At the end of the letter, include a paragraph referring to all the statements you attached, a paragraph for the agent to review your letter and express your gratitude and anticipation for their reply. After that, conclude the loan request letter with your signature.
Bellow should be a list of your financial statements and other financial documents you included in your business loan application.
There you have it, simple guide to write a business loan request letter. It might seem overwhelming at first but if you apply for a loan that needs this kind of letter, make sure to include key points like specifying the amount, explaining what your business is and does, how the loan will be spent and also how it will be repaid. Above all keep it brief and precise with measurable metrics. After a letter like this, make sure to use the loan you will receive and good luck in future business endeavors!