A loan application letter is a formal letter written to a financial institution by a borrower requesting a loan, payable in a specified amount of time.
The letter helps lenders get acquainted with the borrowers better to determine if they qualify for the loan based on the information provided or not. Writing an exceptional loan application letter is important because it helps convince lending institutions to lend you a specific amount of money. It is their first impression of you, which is why it should be written with great care. In this article, we will guide you on how to write the loan application letter, the type of information you should provide, and some pointers that will help you highlight your strengths in the letter.
Brief Overview- What to Include
There are no strict rules for writing an application for a loan. It depends on the borrower to decide what information to include, but the following items are typically included in an application letter:
- Contact information
- Explanation of why money is needed
- Amount of money being requested
- Purpose of the money
- Details about employment history
- Personal references
- Company information
- A list of supporting documents
When to Write?
Two main situations warrant a loan application letter. The first instance is when you are seeking a loan from a conventional bank lender. Conventional bank lenders are financial institutions that do not offer loans but make them available to the general public. Conventional banks usually require applicants to submit a loan application to prove their creditworthiness.
The second situation that warrants the use of a loan application letter is when applying for an SBA-guaranteed loan. An SBA-guaranteed loan involves the federal government; applicants must undergo additional screening before they are approved for funding. Applicants can improve their chances of getting an SBA guarantee by submitting a personalized, formal loan application with supporting documentation.
Tip: There are situations when you do not necessarily need to write a loan application letter, such as when you are borrowing from friends and family, from an alternative lender who may only require your bank statements or pay slips, when seeking equipment financing, and lastly when you are requesting a business line of credit.
Applying for a loan involves being prepared for anything, so it is important to have the things you need before writing. Do some research on your lender, and write down notes about why they are suitable for you and what you would like them to know about your project. Write those questions that may arise during the process of applying for your loan. Check your credit score and know your rights as a borrower when you apply for a loan.
After you have done all of the above, review everything and ensure that what you’ve written is easy to understand by someone who has not read your notes or audited your finances. When applying for a loan in a major financial institution or applying for an SBA loan, you will almost always be required to write a loan application letter. It is important to note that unless your loan application letter is supported by a sound credit situation or proper financial planning, it may not be enough to help you secure the loan.
Fortunately, there are two things that you can do to increase your loan limit and increase your chances of getting a loan. You can first check your business and personal credit scores from accredited credit reporting bureaus such as TransUnion, Equifax, and Experian and take the necessary steps to improve them.
The second thing that you can do is to prepare your business financial statements, i.e., your profit and loss statement, cash-flow statement, balance statement, etc., for the past six months and attach them to your loan application letter. These documents are essential when applying for a loan as they help the financial institution assess your creditworthiness and increase your chances of securing a loan.
How to Write a Loan Application?
Writing a loan application letter can seem daunting, but it can be a simple process if you follow the proper format and include all the required information. The following is a summary of the information you must provide in your letter:
The header is an integral part of the standard business letter format. It should include:
- Your name and contact information: Make sure to include your full name, address, and contact information. This should include a mailing address with a zip code, a business email address, and your cell phone number where you can be reached.
- The date: Include the month, day, and year of the loan application letter. You must ensure that you write the date on which the letter was created.
- The name of the recipient: This will be a bank representative in many cases, but it can also be an SBA representative or another financial institution to whom the borrower is addressing the letter.
When writing the loan application letter, make sure to include a clear subject line that will help the recipient understand the purpose of the letter. Make sure to include whether the loan is for personal or professional use in the subject line.
“Loan Request Application Letter.”
Address your letter correctly. If you do not know who will be reading it, write “To Whom It May Concern.” If you are trying to get a business loan, address it to the company’s representative issuing the loan. If you are applying for a personal loan, address it to the bank or whoever provides it.
Your loan application letter should begin with a brief statement of the goal and amount you are requesting. It should also state your qualifications for the loan and any other pertinent information that can be used for your evaluation as a borrower such as your financial status, your work history, the length of time you have been in business, etc.
The body of the loan application letter is the main part of the letter, and it should contain all the information the recipient will need to decide whether to grant the loan or deny the request. Some of the information that must be covered in the body includes:
- Basic business information: If you are writing a business loan application letter, the first item to include in the body of the letter is details about your business. This information will help the lender understand who you are and will serve as the foundation for your loan application. Some of the information that you should cover in this section includes your business’s registered name, business type (i.e., partnership, sole proprietorship, LLC, etc.), nature of your business (i.e., what you do), main services and products, your business model, the number of employees that you have, and your annual generated revenue.
- The purpose of the loan: You must explain why you need the loan and the purpose for which it is being requested. This can be to purchase or expand a business, for a personal reason, or to pay some debt.
- Present yourself as being trustworthy: To get a loan, you need to establish trust with the lender. This can be achieved by explaining what you do for a living, providing some identity documents, and demonstrating why you deserve to be trusted.
- Explain how you intend to pay back: Explain briefly how you plan on repaying the loan. This should include a timeline for repayment and be supported by evidence such as a business plan, personal financial statement, or credit report.
- Proof of financial solvency: In some cases, you will be asked to provide evidence that the funds requested are not your only source of income. Documents like bank statements or tax returns can help you prove that you have other sources of funding, which will increase the likelihood that your request will be granted.
In the conclusion, you must thank the lender for considering your request. Briefly mention all the attached financial documents. Remember that each lender has their own set of loan application requirements and may request different information or documentation from borrowers, so make sure to double-check the specific instructions provided by the lender.
Once you have finished writing the letter, be sure to sign it at the bottom. You may include phrases such as:
“Respectfully yours” or “Sincerely yours”.
Place your name and contact information directly above the signature line.
SBA Loan Application Letter Template
[City, State ZIP Code]
[Your Phone Number]
[Your Email Address]
[Loan Officer’s Name]
[City, State ZIP Code]
Dear [Loan Officer’s Name],
I am writing to apply for a Small Business Administration (SBA) loan to help fund my [business name]. I am excited to have the opportunity to present my business plan to you and explain why I believe my business is a great candidate for an SBA loan.
[Provide an introduction to your business, including its history, products or services offered, and unique selling proposition. Explain why you started the business and what sets it apart from competitors. This should be no more than two paragraphs.]
I am seeking an SBA loan in the amount of [$ amount], which will be used to [briefly explain how the funds will be used]. My business has experienced steady growth in recent years, but we need additional capital to take advantage of new opportunities and expand our reach.
[Provide a detailed explanation of how you plan to use the funds, including any expected return on investment. Be specific about the amount of money you need, how long you will need it for, and how it will be used.]
As part of my loan application, I have included the following documents for your review:
Financial statements for the past three years
Tax returns for the past three years
Cash flow projections
Articles of incorporation
Personal financial statements for all owners
A list of collateral that will be used to secure the loan, if applicable
[Provide a comprehensive list of all the documents you have included with your application. Make sure you have included everything the bank has asked for, and any additional documents that may be relevant.]
I am confident in the future success of my business and believe that an SBA loan is the right choice for us. I understand that the loan application process can be lengthy, and I am committed to providing any additional information or documentation that may be required to support my application.
Thank you for considering my loan application. I look forward to hearing from you soon.
Loan Application Letter Sample
11 Richmond Terrace
12th Jan 20XX
ABC Bank and Trust Company
123 Main Street, Suite 555
Los Angeles, CA 90001-4444
Re: Business Loan Application for $10,000
To whom it may concern,
I am writing this letter to apply for a business loan of $10,000. This loan is being requested to help me purchase new equipment and cover monthly overhead expenses.
I run a small internet business as a sole proprietor, designing websites for my customers. I have been in this business for the last three years and have been able to save some money during this time. In the past two years, I have had a satisfactory profit that has enabled me to accumulate decent operating capital.
I am requesting this loan to buy new equipment for my company. I need a computer for designing web pages, an internet connection, including dial-up, broadband, and mobile, a modern printer, and a scanner. With the changes in technology, these computers are becoming obsolete very quickly. My existing computer is too slow to do this type of job. It is crucial to have up-to-date equipment in my field of work. This will enable me to offer better services and accept more assignments. I estimate that within six months the return on my investment will be sufficient to repay you in two or three years.
I understand that this type of loan has certain conditions and restrictions, but I can assure you that I will repay the loan with interest at the end of the agreed-upon period. My business is sound, reliable, and profitable, with a good reputation in this community. I have no other debts, and I offer you a 12-month security interest.
I would welcome the opportunity to meet you and discuss your requirements in more detail. I hope that we will be able to agree on the loan. If you have any questions about this application, please contact me at (123) 456-7890 or by email at firstname.lastname@example.org
Sample letter for SBA load application
[City, State ZIP Code]
[Name of Lending Institution]
[Address of Lending Institution]
[City, State ZIP Code]
Dear Loan Officer,
I am writing to apply for an SBA loan to help finance my [insert business type] business. I believe that with the help of this loan, I can expand my business and reach new heights of success.
As a business owner, I have spent several years building and developing my business. However, due to various challenges, including the impact of the COVID-19 pandemic, my business has faced financial difficulties. I have been looking for ways to secure financing to keep my business running and growing, and I believe that an SBA loan is the best option for me.
The loan amount that I am seeking is [insert loan amount]. I plan to use this loan for [insert purpose of the loan, such as equipment purchases, inventory, working capital, or other business expenses]. I have done extensive research and believe that this loan amount will be sufficient to meet my business needs.
To provide you with a complete picture of my business, I have attached my business plan, financial statements, tax returns, and other relevant documents to this application. I have also included a personal financial statement, which outlines my current assets, liabilities, and net worth.
In addition, I would like to share some information about myself. I have [insert number of years] of experience in [insert relevant field], and I am confident that I have the necessary skills and expertise to run a successful business. I have a proven track record of managing my business finances effectively, and I am committed to ensuring that my business continues to grow and thrive.
I understand that an SBA loan requires a personal guarantee, and I am willing to provide this. I also understand that there may be other requirements for the loan, such as collateral or a specific credit score, and I am prepared to meet these requirements.
Thank you for considering my application for an SBA loan. I am excited about the potential this loan offers for my business, and I look forward to working with you to make it a reality. If you require any further information or have any questions, please do not hesitate to contact me.
Tips for Writing
Following are some tips for writing a loan application letter:
Be sure to include specific details in your loan application letter to keep the reader’s attention. Ensure that you include information about the purpose of the loan, how much money you need, and the reason why you are a good candidate for a loan.
Brevity is essential when writing a loan application letter. Stick to the essential points and avoid extraneous details. This will help to ensure that your letter is easy to read and that the reader is not distracted by irrelevant information.
Address the appropriate person
Ensure that you address your letter to the most relevant party for your particular situation. For example, consider contacting the bank to find out to whom the letter should be addressed. This is how you can be sure that your letter will get to the right person.
Use a proper format and layout
As with all letters, you should use clear, concise paragraphs and avoid unnecessary jargon. Make sure to use the appropriate format for formal letter writing and use a professional, polished layout.
Include business financial statements
The financial statements for your company must be attached to your loan application letter if you are a business owner. In this way, the reader will better understand your overall financial situation and help demonstrate that you are a good candidate for a loan.
Tip: The following are some of the purposes for which you may request a small business administration loan: to start a new business, to buy new equipment or inventory for your company, to upgrade or expand an existing business, to cover unanticipated expenditures, to pay off high-interest debt, to fund marketing campaigns, to move your office to a new location, to buy insurance for your business, to purchase stock, to buy out shareholders, and for any other lawful reason authorized by the lender.
Here are the key takeaways from this article:
- When writing an application for a loan, be sure to provide specific details about the purpose of the loan, how much money you need, and why you are a good candidate for a loan.
- Use the standard business letter format and use clear, concise paragraphs.
- Brevity is vital when writing such a letter, so mention only the essential points and avoid extraneous details.
- Address your letter to the most relevant party for your situation, and be sure to include your company’s financial statements.