Applying for a loan from a bank or other lending institution usually requires the applicant to fill out a form. Along with this form, the applicant can also include a loan application letter that may give more details than are required on the form. This letter will be addressed to the loan manager, and may help him or her decide if the applicant is qualified to receive a loan. Even though the letter may contain some personal information, it is part of a formal business transaction and should be short and to-the-point.
Some lenders require a standard loan application letter for a personal loan. This means the loan officer wants to know the intended use of the loan. This is to be sure that the loan is not used for illegal purposes. The applicant should state the reason he or she wants the loan in the first paragraph. They can give details about how the money will be spent. For example, it may be to remodel a kitchen or landscape a yard. If these things are being done to increase the value of the home, this can also be mentioned.
For a personal loan, the letter may also include the date the applicant expects to repay the loan completely with interest. The applicant can also include any positive information that will help the loan officer see that the applicant is a trustworthy person. This may include information about employment, past financial history such as loans that were repaid on time, and any voluntary work the applicant does.
The first sentence of the loan application letter should state that the applicant wants a loan and the amount of the requested loan. In a matter-of-fact tone, the letter can give personal reasons for requesting the loan. It can also state what the loan will be used for and how it will be repaid. All financial and business information given should be factual and honest. If there are any untruths in the letter, it may be considered fraud, which is punishable by seizure of accounts, fines and, possibly, incarceration of the applicant.
If the loan is being requested by a small business, the letter must include certain documentation that proves the loan will be used for legitimate purposes. The letter should state how much money is required, how it will be repaid and any collateral that will be designated for the loan. Most lending institutions require this to safeguard their investment against the possibility that the loan cannot be repaid.
Some of the documentation that should be included is:
• The names and job details of the management team including the legal structure of the business, senior management and qualifications
• A clear understanding of the current marketplace including how the business attracts customers and their daily or monthly sales numbers
• Proof of substantial experience in the industry such as years the business has been functioning and how the profits have increased each year
The letter should explain how the loan would help the business succeed. It can state the uses for the loan such as to purchase more inventory, office equipment or expand warehousing.
By Andre Bradley