If you’ve ever written a cover letter while applying for a job, it’s easy to understand the purpose that a loan request letter serves. Cover letters let employers know your interest in a job, and why you’ll be a good fit in the position. Loan request letters have a similar purpose – they’re meant to exemplify your worthiness of receiving a loan. Like a cover letter, they’re meant to tell why you’d be a good fit for a loan, and how you’d use it to benefit your business – and ultimately pay it back. 

It’s all about how well you can present your needs to a lender – how you’ll use the money to grow your business in order to pay the lender back. According to  Alan Hunt, an SBA District Director, within your letter you’ll need to be able to portray clearly:

  1. How much money you’ll need 
  2. How your business will be using the loan
  3. How you’ll repay the loan
  4. And what you’ll do if you cannot pay the loan back

When Is a Loan Request Letter Needed?

Not all loans need a request letter. Smaller loan amounts just require an application, but as loans get larger, the requirements get stricter. Most of the time, letters will only be required by traditional bank term loans and SBA loans. Some might specifically request it, and some might require extra information you can turn into a letter, and will appreciate your thoughtfulness in doing so. 

Should you be worried about the differences? SBA loans have stricter requirements for letters because they backed by the government. SBA loans also require a bit more information. Here’s a breakdown:

  1. You’ll need to share financial information not only about yourself and your business, but also about any and all business partners. They’ll also want to know
  2. How much of your own money you’ve invested in your business. 
  3. You’ll need to be very clear about your business, because the SBA doesn’t fund certain types of businesses. You want to make sure it’s clear that you’re not a part of their ineligible businesses. For example, the SBA will not back loans going toward religiously-affiliated businesses, politically-affiliated businesses, passive businesses, or businesses that operate with a pyramid-style distribution plan. Find the full list of ineligible businesses here
  4. Exemplify your experience and your qualifications within your industry.
  5. Exemplify you and your team’s “good character.” business owners on parole are also not qualified for SBA loans.

Banks, however, are often interested in creating long-term customers, they care the most about your ability to pay them back. They’ll be interested in laymen’s terms of why you need the money and how you’ll plan to pay it back. Typically, these don’t need to be as in-depth as an SBA loan request letter. 

What Details Should All Loan Request Letters Include?

In addition to the details listed above, there are some smaller details and tips you should keep in mind when writing your loan request letter. 

  1. Keep it brief – keeping the parallel with a cover letter, you should keep your loan request letter under one page long. It will most likely be a challenge to include all the details you need in under a page, but underwriters don’t have all day to read and analyze your letter. They’re looking for the information they need in an easy-to-read package. 
  2. Give the background of your company and team. This puts a human aspect to your application, and lets lenders know who they’ll be benefiting. 

Here’s a chronological list of how your loan request letter should be structured, according to Fundera:

  1. Header
  2. Greeting (To Whom It May Concern…)
  3. Business name
  4. Business structure (S-corporation, partnership, LLC)
  5. Brief description of what your business does
  6. Time in business
  7. Number of employees
  8. Info on partners (if applicable)
  9. Annual revenue
  10. Why you need a loan
  11. Any vendors you’ll be purchasing from (if applicable)
  12. Evidence you’ll be able to repay the loan, supported by finances projections

Do You Have To Have A Loan Request Letter? 

Not all lenders require loan request letters. Online lenders are ones that don’t. Most of these lenders only require quick online applications. If you’re looking for a loan that’s a little less effort, FaaSfunds can help. We’re here to find the best business loans for your situation. Sign up today.