How to Write a Letter to a Bank Asking for a Loan

Write a business profile. Explain the nature of your business. For example, if you are a flooring company, describe the products you sell. Identify your typical customers. The typical customer of a flooring company might be retailers of carpet, linoleum, tile and hardwood. Describe the primary focus of your business, such as service and delivery of flooring products to retail businesses for resale.^[7]

• Include a narrative discussion of the development of your products or services since the inception of your business. Detail the volume of business each product generates. Describe significant changes in your products or services.^[8]
• Briefly state your tentative goals for the next 5 years.^[9]
• Describe your work force, including the size and their critical skills.^[10]
• Briefly describe your supplies and name your major suppliers.^[11]

Describe your management team. List the company owners and describe the legal structure of your business. Provide profiles of senior management summarizing their key experience, qualifications and credentials. Briefly explain the organizational structure. If there is a board of directors, list their qualifications. Name their positions on the board and how they contribute to the company's success.^[12]

Provide your marketing plan. Explain how you create customers. Outline your strategy for growth. State how you communicate with customers. Describe your sales activities. Explain your competitive advantage. For example, you may offer customers added value with lower prices or additional benefits and services.^[13]

Describe your production plan. Explain your manufacturing process. Quantify the total amount of output your manufacturing department generates in a given period. Describe how you allocate resources, such as employees and materials. Explain how you meet promised delivery dates and avoid overloading or underloading your production facility. Assure your lender that you have the operational capacity to meet your production goals.

Describe your human resources management. Explain how you recruit qualified employees. Describe your training process. Specify how you orient new hires. Note any continuing education and advanced training you provide. Mention your employee retention statistics. State how you retain qualified employees who project your business further.^[14]

State the amount of money you need. Be realistic about the amount of money you are requesting. Explain how you determined the amount. Include relevant quotes. For example, if you are purchasing equipment, include quotes for equipment and supplies. If you are expanding, provide quotes for building costs. Explain how you will use the loan and why you need it.^[15]

Discuss loan repayment. Describe the terms you hope to receive. Include the interest rate and term you expect to receive. Provide sales and cash flow projections to demonstrate that you can make the payments. Realize that interest rates and terms will be negotiated by the lender. They will base their loan terms on their risk assessment of your business.^[16]

Describe collateral you are willing to pledge. Most loan programs require collateral. Collateral secures the loan because it can be sold in the event that the business cannot repay the loan. Most lenders require at least 2 forms of loan repayment. The first is cash flow generated from the business. The second would be collateral that is pledged to secure the loan.^[17]

Include personal financial statements. Any owner with a 20% share or more in the business should provide personal financial statements. Recent statements are required. The statements must be under 90 days old. Tax returns may also be required. Some lenders ask for tax returns for up to the past 3 tax years.

Provide business financial statements. Provide 3 years' worth of financial statements. Also provide current statements for the past 90 days. If you are just starting out, provide projected financial statements. Include a balance sheet that lists your assets, liabilities and equity. Provide an income statement, or profit and loss statement, which includes all income and expenses in a given period of time. Prepare a reconciliation of net worth, which is an accounting of financial changes that have increased or decreased the net worth of the business.^[18]

Give a statement of equity. Explain how much equity you and the other owners have in the business. Lenders will want to see that you have put some of your own money into the business. The amount depends on the type of loan requested, how it will be used and the terms. You can build equity in your business through retained earnings or from an injection of cash. Usually, lenders want to see that any business debt totals less than 4 times the amount of equity.^[19]

Provide financial projections. Lenders generally want to see how you expect your company to perform over the next 5 years. Generate projected monthly and quarterly financial statements for the first year. Provide quarterly and annual statements for the following years. Include forecasted income statements, balance sheets, cash flow statements and capital expenditure budgets. Prepare to discuss how you will change operations if you do not generate the projected cash.^[20]

• Make sure to include the assumptions behind the projections and state clearly that your estimated results are projections, which means they aren't guaranteed, and may not be reached.