What Is Softloan- How It Works, Pros And Cons

A soft loan is a type of loan that features little or no interest rate and is offered majorly by governmental bodies especially to developing countries to help fund their needs.

In this article, we have highlighted a few important tips and templates that will guide you on how to craft a good application letter for a soft loan. Read on to discover the pros and cons you never knew about softloan.

One of the biggest financial institutions that offer soft loans is the World Bank. World Bank comprises of two independent bodies- International Development and Association (IDA) and International Bank for Reconstruction and Development (IBRD)

Established in 1960, IDA (International Development Association) is an international financial institution in the process of offering concessional financing and grants to the underdeveloped countries of the world.

IDA is headquartered in Washington D.C, USA. it was established to complement the already existing International Bank for Reconstruction and Development to lend to countries with poor creditworthiness and lower per capita income.

Applications for Softloan- Best Tips

Loan Application is the letter that helps the lender decide if you’re qualified for the loan. Crafting a Loan Application Letter cover letter that catches the attention of hiring managers is paramount for you to get a loan offer.

Below are tips on how to write a good loan application letter.

  • Address to the right authority
  • State reasons why you need the money and how the money will be spent
  • Specify the loan amount
  • Mention how you intend the loan to be repaid
  • Present positive attributes about yourself to ensure you are trustworthy
  • Always provide the right information and be honest
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Short Applications for Softloan Sample

Sample #1.

(Date)
The Business Manager
(Name of Bank)
(Branch, address, and location)
Dear Sir/ Madam

Application for Personal Loan

I am requesting a business loan in the amount of $15,000.00 for the purpose of expanding my warehouse facilities. My business has experienced significant growth over the past three years. This increase in business necessitates I expand my current warehouse facilities to accommodate a larger inventory.

I have experience in the home decorating business and I am considered an expert consultant in the industry. My interior design plans have been featured in several national magazines, including Architectural Digest, Home Embellishments, and Jenny’s Town and Country Designs. I started Lindon’s Home Decorating Services in 1995 and the company has earned a profit consistently year after year, even during the recent recession.

The market for this business is heavily dependent on the housing market and the health of the economy. Over the years, I have pursued and won major contracts with national hotels. This steady stream of work protected my business during the recent recession. Today, the housing market is improving rapidly and the projected growth exceeds prerecession numbers. In addition, sharp increases in the building supply market suggest a growing trend in home remodeling.

My clientele includes five large hotel chains and two large national corporations that provide my company with new work orders each month. I utilize cost-effective marketing strategies that result in an average of 200 new orders every month from private homeowners.

To date, I have invested and recouped through profits $200,000.00 of my own money. I intend to invest $50,000.00 of my own money for this specific project. My collateral consists of business assets with a fair market value of $950,000.00 and personal assets valued at $550,000.00.

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I am enclosing my business plan, which details the reasons for the loan request. If you have any further questions please do not hesitate to contact me.

Faithfully,
Vincent Paul

Cintho’s Home Decorating Services Santa Clara, CA 555-555-555United States vincentpaul@gmail.com

Enclosure: Business Plan

Sample #2.

Name of applicant
Address of applicant
City, State, Zip Code

Date

Name of Loan officer
Name of Bank
Address of Bank
City, State, Zip Code

Dear Name of Loan officer,

Request For Loan

Exactly one year ago I started a cloth napkin company out of my own home. Over the last year, my business has experienced significant growth up to the point where I now need to expand.

I am writing this letter to request a loan so that I can expand my business. I am very confident that there is a strong market for cloth diapers in the US. I have many repeat customers and my client base is growing rapidly as word about my business spreads throughout the community. Therefore I am requesting $10,000. This money along with the money I already have saved up myself will allow me to lease a modest storefront and to purchase all the paperwork supplies and equipment I need to launch the new space.

I have attached my business plan as well as all of the paperwork needed to apply for this loan. You will see that I have an excellent credit history and a solid business plan. If you have any further questions please do not hesitate to contact me.

Signature of Applicant
Printed Name of Applicant
List of Enclosure

Pros And Cons of Softloan Program

Advantages

  • Developing countries get easy funding to fund their expansion and also the time frame offered can be extended.
  • Helps startups to expand and grow their businesses which in turn fosters the economic growth of the country
  • Generally encourages economic collaboration wherein the countries involved in the soft loan financing benefit from one another.
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Disadvantages

  • In rare cases, the country getting soft loans may not afford it and can get into a debt trap.
  • The length of time it may take to repay a soft loan could mean the lender is tied to the borrower for an extended number of years.
  • The terms of the loan are lenient and businesses may not take it seriously. If the business fails, the loan is converted into a grant by the government.

Reference

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