Entrepreneurs or small business owners who are seeking a business loan will have a better chance of success if they know how to position themselves as a viable and attractive investment for banks and other lenders.
They will need to present a business plan along with a business loan request letter. There are some tips that will help the candidates present themselves as fiscally responsible.
Banks and other lenders make most of their profit from granting loans. They want to approve loan applications, but the application needs to meet their lending requirements.
It is recommended for the applicant to educate himself about business loans before beginning the process of gathering and organizing the required information. This will enable the applicant to be knowledgeable if their application is being considered, and they need to speak to a lending officer.
Some of the information the applicant will need to give is:
• The reasons they are applying for the loan
• How will the loan be used
• Are there assets to purchase, and, if so, who are the suppliers
• Does the applicant have other business debt, and if so, to whom
• Who are the members of the management team
• The applicant’s personal background
• Does the applicant have any management or business experience
The request letter should be kept to one page. The request should be made in the first sentence including the amount required, so the lender learns what he or she needs to know without having to read the whole letter or turn to another page. This will work in favor of the applicant because it shows respect for the lenders time.
The details of the business should be explained in one short paragraph. If the nature of the business can be explained in two or three sentences, it shows the lender that the applicant knows what they are doing.
The reason the applicant needs the loan should be clearly expressed. It doesn’t require many details because these should be in the attached business plan.
Small Business Administration
The letter should also include the amount that the applicant has invested in the business from his or her own money. The U.S. Small Business Administration (SBA) will guarantee some loans if they meet their requirements.
The businesses must not lend or speculate or have passive investment or pyramid sales or gambling. The owner, partners and management must have good character and experience in the business as well as good credit history.
It is not easy for a start-up business to get a loan unless they appear to be very low risk. Most banks and lending institutions prefer to lend to businesses that are already successful and need a loan to take the company to the next level.
The letter should be written with a clear and open tone and be truthful. In many cases, large banks do not lend to small businesses, but smaller community banks and lending institutions may be more likely to give a small business loan. However, it is also recommended for the applicant to approach a bank or lending institution with whom they already have a financial relationship.
Business loans may be required for a one person start-up or a company with hundreds of employees. Loans can range from microloans of $5,000 to $5 million according to the SBA. The average amount of a business loan is about $371,000 with the highest about $250,000.
Here is a sample business loan request letter. It should be sent by certified mail, so the applicant has proof of the time and date the letter was sent and received. If there are any enclosures such as a business plan, they should be copies and not original documents.
Sample Business Loan Request Letter
City, State, Zip Code
Lender’s Institution Address
City, State, Zip Code
Re: Business loan request for $50,000
Dear Lender’s Name,
The aim of this letter is to request a small business loan of $50,000 to improve and upgrade my restaurant. My business is registered and approved by the health department. I have been in business for the past five years and have shown a profit each year.
One of the reasons my restaurant is so successful is because it is the only restaurant in the area of a five mile radius that serves authentic Indian food. We purchase fresh produce daily and prepare several dishes that represent the cuisine of both North and South India.
To meet the growing demand for our specialty, I need to expand the kitchen, add some new stove tops and refrigerators as well as expand the dining area. The shop next door has agreed to sell me their premises for expansion at a fair market price.
There are several other different ethnic restaurants in the area that are also prospering, and I believe that the market for India cuisine is growing. My restaurant is crowded every night especially on the weekends. I have already invested most of my profits in the restaurant and require the loan to expand in order to meet demand.
Please see the attached business plan that outlines my financial projection for the next five years and clearly states my assets to date.
If you have any questions, I can be reached at 555-123-4567 or at Name@email.com. Thank you for your attention to my loan application.
Applicant’s Name Printed
List of Enclosures (Business Plan)