A small business loan request letter is a letter to a bank that supports your business loan application. It should include the amount of money you want to borrow and explain why you merit the loan, how you expect to use the loan, and how you plan to pay the bank back.
If you’ve applied for a small business loan at a bank, you’re probably familiar with the need for a business loan request letter. You can think of this letter, which accompanies your loan application, as part resume, part cover letter. It contains important information about your business’s history and financial status, and gives you an opportunity to convince the bank to loan you money.
It might seem impossible to condense your business down to one page for a total stranger who’s never met you. We understand the feeling, but knowing how to write a business loan request letter in an effective way can help you meet the challenge. Remember—this letter might be one of your only opportunities to personally convey to your lender why they should approve your application.
We’ll make the steps for writing a business loan request letter as simple as possible. Here’s what lenders want to see, what this letter is for, what to include, and the format to follow for best results.
There are many financing options for small businesses, and depending on which one you pursue, you’ll spend more or less time and effort on your business loan application. In most cases, a business loan request letter is required for only two types of loans—conventional bank term loans and SBA loans.
Each of these lenders need similar information, and we’ll get to that in a bit. But first, let’s look at a few small differences between these two business loan request letter types.
It shouldn’t come as a surprise that banks are more likely to lend money to businesses that appear to be growing and could possibly turn into long-term customers. Unfortunately, the good majority of small business owners find that traditional bank loan requirements are so strict that qualifying is difficult. But if your personal credit score is excellent, this might be an option you want to explore.
Before committing to such a long-term borrowing relationship, however, your bank lender will want to learn everything they can about you and your business in order to make sure you are a safe credit risk.
That’s why during the small business loan underwriting process, the bank’s underwriter will look to your business loan request letter as a direct appeal in your own words for the funding your business needs. This is your opportunity to tell the lender why you need the loan and show evidence that you’ll be able to repay the loan.
The SBA loan application process is complicated as is. SBA loans are backed by the federal government, so in addition to your lender’s requirements, you also have to comply with any SBA rules. Most lenders will ask you to submit a loan request letter before committing to providing your business an SBA loan.
When you write a loan request letter for an SBA loan, be prepared to share financial details about yourself and any business partners, in addition to specific information about your business’s finances and credit history.
SBA-backed lenders will need to know how much of your own money you have invested in the business. Your business loan request letter should also clearly indicate your company’s industry. This is because the SBA doesn’t fund businesses that lend money or speculate, nor do they fund passive investments, pyramid sales, or gambling of any sort.
With respect to describing your partners and management team, be sure to elaborate on the “good character” of these individuals within your business loan request letter. Also, you should indicate whether or not you and your leadership team have previous management or industry experience that directly applies to your current business.
The business loan request letter is a tool banks use to pre-judge you and your creditworthiness, often before they ever have a conversation with you directly. That’s why it’s important to pay attention to what you say in the letter and how you say it.
Your letter should be short—ideally just one page—but full of pertinent information about your business.
Let’s walk through the building blocks of a successful small business loan request letter:
Every small business loan request letter will need to start with a header and a greeting. The header will consist of a few lines of necessary information on the basics of your business loan request. Be sure to include the following information in your header:
Below this header, be sure to include a greeting that will get your business loan request letter off to a cordial start.
The body of your small business loan request letter should start with a brief summary. Provide a quick description of your loan request with basic business information, your ideal loan amount, why you need the loan, and what would make you an ideal borrower. That said, keep this section concise—only provide the most important information here so that your loan agent can get to the body of your business loan request letter.
The first sentence of your letter should express your request for the loan and the amount you want to borrow.
Next, use a few short and concise sentences to provide a basic overview of your business. In this section, be sure to include:
Once these business basics are covered, you’ll be ready to move on to the meat of your business loan request letter—describing the purpose of the business loan you’re requesting and how you plan to recuperate the investment.
With the business basics covered, you’re ready to explain clearly and succinctly exactly how you plan to use your business loan funds. And, of course, explain why this use of funds will be a wise business investment.
Be as specific as possible, showing the lender that you’ve carefully considered what taking on this new debt will accomplish. For example, don’t just say that you plan to use the loan for working capital. Say that you plan to increase inventory by 150% or hire three new hires who will increase revenues by $1 million.
Remember, your lender’s number one priority when considering any loan application is to determine the likelihood that you will repay the loan on time and in full. A lender’s goal is always to minimize their risk! As such, be sure to mention exactly how the loan will help generate the necessary additional income to cover repayment plus interest.
Once you describe how you plan to use the loan funds requested, you’ll get to the part in your business loan request letter where you need to demonstrate that you can pay back the loan. Of course, the rest of your loan application will contain detailed information about your business financials and help to prove that. But here, you want to highlight any specific business financials to support your claim that funding your loan will be a low-risk decision for your lender.
Use figures from your most recent balance sheet or income statement as evidence to indicate the current financial health of your business. If you have other business debts, make sure to mention that and include a business debt schedule. If you’re profitable, make sure to highlight that because it’s something that many lenders look for in successful applicants.
From there, consider highlighting specific cash flow projections to show the lender how you plan to fit repayment of the requested principal and interest into your budget.
Now that you know exactly how to write a business loan request letter, you’re ready to input information about your own business format that will match your lender’s expectations.
To simplify this process, think about following this free business loan request letter sample as a guide. Of course, you’ll need to edit and adapt this template to match the specifics of your business and the loan you intend to pursue. The format of a business loan request letter will typically be on printed 8.5 x 11 inch paper. The exception is if your SBA lender supports online applications, in which case you can submit your letter online.
City, State, Zip Code
Lender’s Institution Address
City, State, Zip Code
Re: Small business loan request for [AMOUNT]
Dear [LENDER’S NAME],
The aim of this letter is to request a small business loan in the amount of [NUMBER] for the purpose of [ADD PURPOSE OF LOAN HERE]. My business, [BUSINESS NAME], is a successful and well-established company, which is part of the [TYPE] industry.
[BUSINESS NAME] began operation in [DATE] with [NUMBER] employees, and has shown consistent growth over the past [NUMBER] years. The business now employs [NUMBER] individuals. Our business is structured as a [BUSINESS ENTITY TYPE].
We have an established online presence, as you can see on our website [LIST WEBSITE], Facebook, Yelp, [LIST URL OF ANY OTHER SOCIAL MEDIA]. Through these methods, as well as [LIST ANY OTHER MARKETING AVENUES], we continue to make industry contacts and cultivate new business.
Last year, our annual sales revenue was [NUMBER] with a net profit of [NUMBER, IF PROFITABLE]. We have maintained a consistent cash flow over the past [NUMBER] years, and have operated with an annual net profit each year since opening.
[EXPLAIN SPECIFIC REASON FOR LOAN REQUEST HERE] EXAMPLE: We have completed preliminary market research in [LOCATION OR TYPE OF EXPANSION], and we have seen increased demand for [PRODUCT OR SERVICE YOUR BUSINESS PROVIDES]. Therefore, we are seeking funding to grow the business by [SUMMARIZE BUSINESS GROWTH PLAN].
This business growth opportunity is immediate but will require more funding up front than our cash flow can currently accommodate. Although making the monthly repayments with interest over time will fit easily into our budget, we do not currently have access to a lump sum large enough to make the initial purchase. This loan in the amount of [NUMBER] will enable us to purchase [WHAT YOU NEED] immediately so that we can begin to generate business for loan repayment immediately as well.
Attached, please find our business plan, our most recent cash flow statement, and our annual profit and loss statement for your review. Based on these strong financial documents and our equally strong credit score of [NUMBER], we feel that [YOUR BUSINESS NAME] will be a safe credit risk for your bank.
Please take a moment to review this request letter and the accompanying financial documents. If you feel that you can help our company, we would love to hear from you.
Applicant’s Name Printed
List of Enclosures: Business plan, cash flow statement, and P&L statement (plus, any other documents that are part of the loan application)
Now that you know about how to write a business loan request letter, you might find yourself wishing for a less-complex avenue for obtaining small business funding. Fortunately, there are a number of speedier business loan products that might work for you. The options listed below don’t require a request letter—just a quick online business loan application.
Term loans are a traditional loan product that most people are familiar with. What some business owners don’t know is that they’re available at places other than your local bank. Many alternative lenders in the online funding marketplace offer term loans with excellent repayment terms for small businesses.
Online lenders are often way easier to qualify for than bank loans. To apply, you usually only need to show some recent business bank statements, along with business and personal tax returns. And when working with an online alternative lender, the application and approval process for most term loans can be completed in two to five business days.
After approval from a lender, you’ll receive a lump sum of cash up front. Your lender will give you terms for a predetermined repayment scheduled for your loan amount, or principal, along with interest and fees at regular intervals.
With alternative lenders, most term loans have a repayment period of one to five years. Term loans from alternative lenders usually come with either fixed interest rates that are determined by several factors—size of the loan, credit history, repayment term, or purpose of the loan, just to name a few.
Small businesses and younger companies find term loans advantageous because they come with predictable payment amounts so they can be easily worked into the business’s ongoing cash flow.
Equipment financing is the perfect option if you need to buy or lease equipment. Lenders can be comfortable with more risk with this type of loan. That’s because the collateral is built right into the loan. If you default, the lender can repossess the equipment.
The lender or vendor fronts you the cash to make the purchase, and you make regular payments for a specified period of time. The term is usually determined based on the expected life of the equipment. Depending on the structure of your equipment loan or lease, you’ll either own the equipment outright at the end of the term or have the option to renew your lease or upgrade the equipment.
These loans can also happen pretty quickly—in as few as a couple of days if you have everything in order! You typically just need to show an invoice or purchase order for the equipment and some business bank statements.
If you find that a business term loan requires too much paperwork, try for a business line of credit instead. A business line of credit works similarly to a credit card. Instead of giving you an entire lump sum of cash at once, a business line of credit gives you access up to a certain amount of money. You can draw on that credit line as often as needed, and you only pay interest on money that you use. Lines of credit are useful for recurring expenses, like payroll, and unexpected costs.
Fortunately, applying for a business line of credit can be a bit easier than applying for a term loan. A variety of lenders, both banks and alternative lenders, offer lines of credit to small businesses.
Banks usually request personal and business tax returns, bank account statements, and business financial statements, such as profit-and-loss statement and balance sheet. If the line of credit is for a relatively small amount of money, they might not need to see a formal funding request letter. Alternative lenders usually just need to see business bank statements to qualify an applicant for a business line of credit.
A business loan request letter won’t be necessary if you’re applying for invoice financing, either. Much like equipment financing, invoice financing offers secured business funding without requiring outside collateral. That’s because invoice financing offers business owners advances for their outstanding invoices, and the invoice itself will secure the advance that the business owner accesses.
Even more, invoice financing is one of the quickest-to-fund options that business owners can access. If you don’t have the time to write out a formal business loan request letter—and then wait months and months for a bank to underwrite your business loan application—then invoice financing will be your quickest contingency plan.
The most important takeaways with a business loan request letter are to be precise and concise. Your letter is important because it makes a first impression on the lender who will be funding your loan.
Make sure you include the following in your business loan request letter:
There are plenty of traditional term loans and other small business loan options that don’t require a business loan request letter, too—so don’t be discouraged if this sounds like a bit more than you have the time for right now. It’s a good idea to explore your business loan options based on how quickly you need the money and how you’re planning to use the funds.
Sally Lauckner is the editor-in-chief of the Fundera Ledger and the editorial director at Fundera.
Sally has over a decade of experience in print and online journalism. Previously she was the senior editor at SmartAsset—a Y Combinator-backed fintech startup that provides personal finance advice. There she edited articles and data reports on topics including taxes, mortgages, banking, credit cards, investing, insurance, and retirement planning. She has also held various editorial roles at AOL.com, Huffington Post, and Glamour magazine. Her work has also appeared in Marie Claire, Teen Vogue, and Cosmopolitan magazines.