Finance is the lifeblood of a business. Your business can be in an expansion stage, or it may suddenly need funds to capitalise on a business opportunity that has just presented itself. Funding – where it is coming from and how it will be used are essential elements to the effective functioning of a business. Let us focus on the first part – where the funding is coming from. In many cases, businesses apply to banks or private lenders such as Tata Capital for a business loan. The first order of business is writing a communicative, informative and persuasive business loan request letter. The first impression equals the last impression applies here too, and the letter will give the lender the first glimpse of your business. Basically, you have to condense all pertinent information into one single page. Read on to find out how!
1. Basic information about the business
- Name of business
- The legal status of the business (whether sole proprietorship, partnership, private limited company or public company)
- A short note detailing the business operations (indicate industry, geographical locations and destination markets)
- The years (or months) of operation
- Number of permanent employees and temporary workers (if any)
- Turnover of the immediately preceding financial year. You can also include a short history of turnovers of the three immediately preceding financial years for perspective
2. Purpose of the business loan
This is the part where your persuasive skills come into play. You need to be very clear on how the loan proceeds will be applied by you and why you know it will be a success. Include all the details of the market research conducted. You cannot be TOO specific. The surer you sound in the business loan letter, the better your chances of landing the loan. Any lender would prefer to lend to a person who knows what they are doing and where they are going. Use figures and statistics for support. As far as possible, you need to convince the lender that lending to you is profitable and hence is a win-win situation for you both.
3. Assure the lender of repayment
Keep in mind that lenders are most attracted to safe investments. So be sure to communicate clearly about how you see yourself repaying the loan and by when all payments (including interest) will be completed. Next, provide convincing and factual groundwork on why your premise is reasonable. You also need to specify why you think you will be able to keep up with interest payments regularly. Mention your past business revenue, cash flows and also include testimonials from creditors, vendors, suppliers and employees to support your credibility.
Here, you can also include your personal credit history and financial status as proof of solid money sense and a past history of sound financial decisions.
4. Closing the business loan request letter
Here comes the tricky bit. You have to show that if you are granted a business loan, you will highly appreciate it and put it to good use. However, you must never sound desperate or pleading for the business loan. Sounding too eager is an immediate red flag for any lender. Your application may be outright rejected or you may have to jump through many more hoops to prove that you are capable of handling your business. You may also not be able to negotiate for lower business loan interest rates. So, end on a positive note and impress on the lender why granting you a business loan will benefit you both.
Follow these points while writing your business loan request letter and you are good to go!