One of the toughest aspects of applying for a traditional bank or small business loan is the numerous hoops borrowers generally must jump through to qualify. From gathering all the proper documentation to ensuring your business has the necessary prerequisites to qualify, applying for a loan can be an arduous process.
The primary purpose of the lengthy application is to help the lender determine whether you’ll actually be able to repay the loan. While all the information you provide helps make your case, a well-written loan request may mean the difference between qualification and rejection. Below detailed tips on how to write a business loan request letter that presents your company in the best light possible.
What is a business loan request letter?
A business loan request letter is a written document that you provide with your loan application to help improve your chances of getting approved. Small business owners use it to report the amount of money they’d like to borrow. They also use it to detail how they’ll use the funds for their business and how they’ll repay the loan over time. All that information arrives alongside an explanation of why the bank should fund the business.
How to write a small business loan request letter
Your loan request letter is often the first thing your lender will look at after receiving your small business loan application. It’s how the lender will judge whether you’re eligible for a loan, so writing it correctly is highly important.
While there are many factors to consider when writing a business loan request letter, one thing to keep in mind is its length. Lenders typically use your letter to make snap judgments on whether to continue the review process. That generally means a longer letter may be one reason as to why your application might be rejected. The ideal loan request is usually a page long but packed with all the necessary details, as listed below.
1. Start with a header and a greeting
The top of your letter is reserved for basic identifying information and a subject line that includes your requested loan amount. Most loan request headers include personal details such as:
- Your first and last name
- The name of your business
- Your business’s address
- Your business’s phone number
- The name of the lender or loan officer presiding over your case
- That lender or loan officer’s contact information
- A subject line that states you’re writing to request a loan and the amount you’re trying to borrow
Keeping a cordial tone throughout the letter can help leave a good impression on the lender. So beneath all the necessary information in the header, you should write a kind but formal greeting.
2. Write a brief summary
Start the body of your letter with a brief summary of why you’re writing it and the amount of money you’d like to borrow. Doing so typically means expanding on the information you provide in the header. Accordingly, you’ll want to include only a basic overview of your business while reiterating the amount you’d like to borrow and why.
While there’s more information here than in the header, you should still try and include only the most essential details. The summary section is meant to convince the loan agent to keep evaluating your application, so brevity is key.
3. Provide a basic overview of your business
There’s specific information that you should include as a part of the overview of your business, such as the following.
- Your business’s legal name and any fictitious names for which you have a DBA
- How your business is structured: Is it an S corporation or a partnership, or is it something else?
- A description of the products or services your business provides
- How long your business has been operating
- Your current number of employees
- Your business’s annual revenue (and profits, if applicable)
As with the sections above, keep this information concise so you don’t accidentally dissuade the loan agent from continuing to read. Additionally, make sure to cover the most unique aspects of your business so you can stand out among other applicants in your industry.
4. Add info on any partners, if applicable
It’s not just your business’s success that’s being evaluated. Lenders also put your personal finances and leadership abilities under the microscope to determine the likelihood of your business succeeding in the long term. So if you’re just one of many people who own your business, then it stands to reason that lenders will assess any co-owners as well. Add their info to the header alongside yours and include their finances in any revenue or debt calculations.
5. Explain how you plan to use your business loan funds
While you may have briefly mentioned why you want the loan in previous sections, it’s here that you’ll go into detail. Explain how you’ll use the funds in as much detail as possible while remaining clear and concise. This section should demonstrate that you know what your business needs to increase its profitability. And that you have a plan in place to get there.
Remember that the lender's main goal during this process is to ascertain whether you’ll actually repay the loan. It doesn’t necessarily matter how you use the money as long as you back up your actions with a solid business plan.
To that end, try to be specific when stating the purpose of your new funds. A financial institution won’t approve a loan that simply lists wanting more working capital as the reason for their loan request. Some more acceptable examples of reasons for wanting additional funds include, but aren’t limited to, the below.
- Purchasing additional commercial property
- Funding more expansive marketing campaigns
- Buying out shareholders
- Hiring more experienced employees
- Purchasing newer equipment
- Moving your business operations to a new location
Note that this isn’t an exhaustive list of acceptable reasons to seek a small business loan. If you adequately explain any way that the funds will help your business grow over time, your application generally has a better chance of qualifying.
6. Demonstrate that you can repay the loan
Staying in line with the lender's desire to minimize financial risk, you must demonstrate your business’ ability to repay the loan. Essentially, this means proving that your company is financially healthy enough to make long-term monthly payments on the principal loan amount plus interest.
The financial information you provide to fill out the rest of the loan application will go a long way here, but further detail is typically necessary. For example, you could include a cash flow statement to show that your business is profitable. Or you could highlight your credit history to show that you’ve reliably paid current and past debts.
7. Add your concluding elements
Make sure to keep a cordial tone once you’ve reached the end of the business loan request letter as you include the following information.
- A reference to your attached financial statements (usually about a paragraph long)
- A final paragraph that formally requests that the lender review your application. You should also indicate that you look forward to speaking with them in the near future.
- A signature
- A list of all the documents you’ve included to complete your loan application
Examples of a small business loan request letter
Below are two examples of a small business loan request letter that you may use as templates.
Example small business loan request letter #1
Your First and Last Name [And the name of any company co-owners]
Your Business’s address
City, State, Zip Code
[Date]
Name of the Loan Agent
Loan Agent’s Title
Name of the Agent’s Financial Institution
Financial Institution’s address
City, State, Zip Code
Subject: Small business loan request for [Amount]
Dear [Lender/Loan Agent’s Name],
I am writing this letter to request a small business loan of [Amount] to [Purpose of the loan]. My business, [Name of Business], is part of the [Type] industry and has proven to be a successful venture within its market.
Opening its doors in [Date] with [Number] of employees, [Business Name] has shown reliable, remarkable financial growth over the past [Number] of years. Structured as a [Legal structure of your business], [Business name] now employs [Number] individuals, with our annual sales revenue reaching [Number] last year. In addition, we’ve reached net profits of [Number, Include if your business is profitable], maintaining strong economic growth in the [Number] years since opening.
[Use this section to explain the reason for your loan request, for example]: We’ve observed an increasing number of customers coming into our storefront coupled with increased demand for [Your business’s product or service]. We wish to further capitalize on our success by expanding our current floor space, allowing more customers to purchase our [Product or service] at once. As a result, we request funding to afford [Name what you need] and continue growing our business with [Summary of your business plan].
The potential financial growth of our business is immediate, allowing us to fit repayments plus interest into our monthly budget easily. But we cannot currently produce a lump sum large enough to afford [Name what you need] in a reasonable timeframe. A loan in the amount of [Number] enables us to purchase [Name what you need] to capitalize on this growth opportunity and begin generating new revenue as quickly as possible.
We feel that [Business name] is of minimal financial risk to your bank due to our strong credit score of [Number] and positive finances. Attached to this application are our annual profit and loss statement and our most recent cash flow statement to help corroborate our excellent economic position.
Please take a moment to review this request letter and the accompanying financial documents. If you feel our company is a good match for your bank, we would love to hear from you.
Sincerely,
Your Signature
Your Printed Name
List of Enclosures: Business plan, cash flow statement, and P&L statement [plus any other documents that are part of the loan application]
Example small business loan request letter #2
Your First and Last Name [And the name of any company co-owners]
Your Business’s address
City, State, Zip Code
[Date]
Name of the Loan Agent
Name of the Agent’s Financial Institution
Financial Institution’s address
City, State, Zip Code
Subject: Small business loan request for [Amount]
Dear [Lender/Loan Agent’s name],
This letter is meant to request a loan of [Amount] for the express purpose of growing my business, [Business name]. It’s a [Type of business] venture that’s proven itself a successful provider of [Main product or service] since we opened our doors in [Date]. As an established name within our industry, and with a continually growing customer base, we would like additional funding to capitalize on our success by expanding our operation over the next [Time frame].
[Business name] is a [State your type of business entity] catering towards [Type of clientele]. When we first opened our doors, we employed [Number] people, and in the [Number of years] since, that number has swelled to [Current number of employees]. Furthermore, our management team comprises [Describe each partner and co-owner] who ably [Detail each company leader's responsibilities] while managing employees.
With our current business strategies and team makeup, we’ve reached an annual sales revenue of [Number] and a net profit of [Number – only include if your business is profitable]. We plan to capitalize on our successes with new product initiatives that capture a wider range of clientele within our target market and any overlapping industries.
According to our business plan, any funding we receive would go towards [Explain what your company will use the money for along with any secondary goals]. We believe that our business will present minimal financial risk to your bank, with our credit history demonstrating our penchant for repaying debts on time. Additionally, after carefully assembling [Business name]’s most recent cash flow statement, we believe that our current revenue can easily cover an extra monthly fee plus interest.
In addition, our overhead is very flexible due to the operation of our business accommodating contract and freelance employees, lessening financial strain. This allows us to reliably remain on top of our debts even during tough economic times or if the funding provides fewer profits than anticipated.
We would like to take advantage of this growth opportunity as soon as possible and would appreciate it if you could take the time to review our request letter. Enclosed with the application are several financial documents that help corroborate [Business name]’s continued economic health. We’re more than happy to provide any other information you might need to decide on our loan.
Sincerely,
Your Signature
Your Printed Name
List of Enclosures: Business plan, cash flow statement, and P&L statement [plus any other documents that are part of the loan application]
When do you need a business loan request letter?
Generally, business loan request letters are only necessary when you apply for the below two types of loans.
- Conventional bank term loans. Applying for a bank term loan requires you to meet that lender's particular requirements for eligibility. A loan letter is often one of those requirements. Banks are notoriously risk-averse, and your letter may help to show them that your business is financially stable enough to repay the loan.
- SBA loans. Applying for an SBA loan requires you to meet prerequisites that are just as strict as for conventional bank loans, if not more so. Most SBA loan guidelines recommend including a loan request or similar cover letter-like document to support the financial information in your application.
While the above loans tend to require a loan request letter, other business financing options typically don’t. Such options include:
- Loans from an alternative lender. These loans’ qualification criteria are often less strict than with traditional financial institutions. Some alternative lenders may only request your bank statements when you apply.
- Equipment financing. Typically, with equipment financing, there’s less of a need to prove that your business is profitable. That’s because the equipment you purchase serves as collateral for the loan. If you can’t repay the loan, the lender may easily recoup their losses.
- Business lines of credit. While the eligibility criteria for a business line of credit are similar to traditional banks in some respects, it doesn’t require as much documentation. Generally, getting one will only require your most recent bank or financial statement, not a business loan request letter.
Let SmartBiz® make the loan application process easier
While business loan request letters aren’t always required, they can be time-consuming when they are necessary. And if you’re applying for many loans, you might not have the time to write a loan request for every one. While writing from a template could work, knowing whether you qualify for a loan before you enter the bank may save you even more time. That’s where SmartBiz comes in handy. SmartBiz displays lenders in your area and compares their loan plans with your finances. Check now which loans you prequalify for* before you’ve even picked up an application.
