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.
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.
By Andre Bradley