How to Write a Loan Request Letter: Tips for Getting Business Financing
Last Updated on December 21, 2022 by Selina Parker
If you’re looking for business financing, you’ll need to know how to write a small business loan request letter. A well-written letter can make the difference between your application being approved or denied.
In this blog post, we’ll give you tips on how to write a loan request letter that will help increase your chances of getting the money you need.
Getting a loan could be as easy as writing a letter to your bank. Lenders may ask for assurance as dollar amounts rise or the problem becomes more complicated. They could even request an explanation for why your loan was a good idea.
If your bank requires more information aside from what’s written on a standard application, you may need to write a business loan letter. Some banks request written applications, while others may appreciate any extra efforts you make to try and obtain the loan.
WHAT IS A LETTER OF REQUEST?
A borrower sends a personal loan request letter for a loan to a lender during the application process.
Business loan request letters should have the following:
- Specify the loan amount
- How are you going to use the funds
- Explanation of why you should receive funding
- A concrete plan on how you are going to repay the loan
WHY SHOULD YOU WRITE A LETTER TO YOUR BANK?
Writing a letter allows you to explain your situation in detail.
A loan letter is also a great way to get an idea of the lender’s interest rate and repayment terms, which can help you determine whether or not it’s worth applying for a loan.
It will also allow you to:
- Make comments on areas not covered in a typical application.
- Give a thorough explanation of your financial status.
- Plan your strategy for taking and repaying the loan
- Fill out any gaps in your application or finances.
WHEN DO YOU NEED A LOAN LETTER OF REQUEST?
When you are requesting a loan from a traditional bank or lender, you will need to complete a loan application, which will require you to provide detailed financial and personal information. On the other hand, some lenders may request a letter of authorization to evaluate your company or loan application better.
THERE ARE REMARKS ON YOUR CREDIT REPORT THAT ARE NEGATIVE.
Lenders need to make sure that they’re loaning money to people likely to pay it back. If your credit report has negative items, such as unpaid medical bills or late payments, the lender may be less willing to loan you money because they can’t tell if you’ll repay them. Hence you need a loan request letter to explain any negative marks on your credit report.
YOU ARE NOT PAYING FOR FREE.
Your rent or mortgage histories prove to lenders that you can handle your financial obligations each month. A breakdown of how you will use the loan money can also demonstrate to lenders that you are committed and have a plan for your business venture.
However, it may be a challenge to get approved if you live rent-free.
YOU HAVE NO COLLATERAL OR CO-SIGNER.
Lenders are more willing to give out loans if they see that there is someone who can help pay back the loan in case you fail to do so. Having a co-signer or collateral will improve your chances. However, if you don’t have one, you can still get approved.
BENEFITS OF WRITING A LETTER OF A LOAN REQUEST
- Allows the bank to get to know you and your business.
- Allows the bank to see if there are any gaps in your loan application or finances that you may have missed.
- It gives the lender a clear idea of what you plan to do with the money and how you will repay it.
- It shows that you are serious about getting the loan and willing to put in the extra effort.
BEFORE WRITING A LETTER OF A LOAN REQUEST
Unless you demonstrate a good credit situation and concrete financial planning with a loan request letter for bank and SBA loans, it won’t be enough approval. Do the following two things before drafting your business request letter and loan application package to make your request more convincing to lenders:
- Check your credit scores, and take any action you can to raise them
- Prepare the financial statements you’ll need for your loan package
ESSENTIAL FINANCIAL STATEMENTS YOU WILL NEED INCLUDE:
- Income statement
- Balance statement
- Cash-flow statement
FORMAT OF A BUSINESS LOAN REQUEST LETTER
You have to keep this letter only up to 1 page.
HEADING AND GREETING
The top should include the greeting, your name and address, contact information, the date, and the recipient’s name and title.
SUMMARY OF YOUR LETTER REQUEST
State the purpose of your letter in the first paragraph. Briefly summarize your business, the amount you are asking, and how you will use the loan funds. If you have other business debts, mention them here as well.
INFORMATION ABOUT YOUR BUSINESS
It should include:
- The legal name of your company
- The legal of your company
- Annual sales revenue
- Number of years in business
- Employees on staff
- Your website (if you have one) and social media links
- Business location(s) and addresses
- A brief description of what you sell or do
EXPLANATION OF WHY YOU NEED FINANCING
Explain to the lender why you need the loan, including a description of your business plan and how you will use the money. Cite numbers as much as possible to back up your request.
HOW YOU INTEND TO REPAY THE LOAN
In this section, you should provide a detailed repayment plan that includes monthly payments and interest rates. It will help reassure the lender that you are capable of repaying the loan on time.
Your letter should end with the following:
- Attachments of business financial statements
- A concluding paragraph in which you request that the loan officer review your materials and express your hope of speaking with them soon
- Your signature
FINANCING OPTIONS THAT DON’T REQUIRE A REQUEST LETTER
If you are looking for trim financing options that don’t require a loan request letter, there are a few options available:
TERM LOANS FROM ALTERNATIVE LENDERS
Term loans with attractive repayment terms are readily available from alternative lenders in the online lending market for small firms.
It is the ideal option if you need to upgrade your equipment but don’t have the money for it. Lenders might be more willing to take a chance on you with this sort of loan because you only provide an invoice or business bank statements. That’s because the loans include collateral. If you default, the lender has the right to repossess the equipment.
BUSINESS LINES OF CREDIT
If you discover that a business term loan is too complicated, consider requesting a business line of credit instead. A business line of credit works the same way as a credit card.
You won’t need a business loan application letter if you’re applying for invoice financing. Invoice financing, like equipment financing, provides secured business funding without the need for collateral.
A loan letter of request is a formal way of asking for financial assistance to start or grow a business. You can prove that you are a reasonable risk and deserve the loan by providing specific information about your credit, collateral, repayment plan, and other accompanying financial documents.
If you follow these tips, you’re sure to improve your chances of getting the financing you need.
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ABOUT THE AUTHOR
“What began as a life and career coaching services company to aide entrepreneurs through the early-stage challenges and tough transformations of starting a social venture has evolved over the years to include mergers and acquisitions, organizational consulting, and business growth advisory services to mission-driven organizations that strive to improve access to basic physiological, safety, and security needs while increasing their profit margin. Clients include founders and organizations with the purpose of addressing deficiencies in delivering quality healthcare and mental health services, sufficient employment, access to clean water and air, safe shelter, adequate food, and more.”
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