Do I need to notarize this letter?

Not always. Notarization depends on the recipient and the legal use of the letter; if the letter will serve as an affidavit or support a deed, notarization or witness authentication may be required. Confirm the recipient’s requirements before submitting.

Can I sign electronically?

Yes. Electronic signatures are valid under the ESIGN Act (15 U.S.C. ch. 96) and most state UETA statutes provided the recipient accepts electronic records and signatures and any required consumer disclosures are given.

What supporting documents should I attach?

Attach documents that directly substantiate the explanation—contracts, invoices, bank statements, or payment confirmations. Label each attachment and reference it in the letter to speed reviewer reconciliation.

How detailed should the explanation be?

Be concise but specific: include who, what, when, where, and why. State exact dates and amounts and reference attachments; avoid speculation or extraneous commentary that can confuse reviewers.

What happens if names or amounts don’t match?

Mismatched details often trigger verification requests, delays, or rejections. Ensure names, dates, and amounts exactly match the referenced records or explain the discrepancy in the letter.

How long will review take?

Review timelines vary by organization and context. For underwriting or tax review expect anywhere from 24 hours for minor clarifications to several weeks for complex matters requiring third‑party verification.

Electronic Signature
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Miscellaneous
Business Purpose Letter of Explanation

Business Purpose Letter of Explanation

This template is fully customizable. Edit the text, fill out the fields, and send it for signature. Give it a try!

BUSINESS PURPOSE LETTER OF EXPLANATION

Date:

Business Name:

Business Address

RECITALS

WHEREAS, the Business is engaged in lawful commercial activities and requires a written statement to explain the specific business purpose of the transaction or arrangement described herein; and

WHEREAS, the Business intends to rely on this Letter of Explanation to document the intended use, scope, and associated commercial terms of the referenced activity for the benefit of the recipient party identified below; and

WHEREAS, both parties intend that the statements and terms set forth in this document accurately reflect their mutual understanding and will be relied upon for the purposes stated herein.

BUSINESS PURPOSE

The Business Purpose of the transaction or arrangement is described as follows:

Purpose Description

SCOPE OF WORK

The Business will perform the following services and activities in furtherance of the stated purpose. The description below sets forth the principal duties, deliverables, and milestones that are intended to be completed.

Scope of Work

PAYMENT TERMS

The compensation for the services and activities described above shall be as follows.

Total Agreed Amount (USD) Payment Schedule and Conditions Late Payment Fee

Payments not received by the due date shall incur the late payment fee specified above. The recipient of payments may suspend performance or pursue collection remedies if payments are more than the notice period specified under Term and Termination past due.

TERM AND TERMINATION

This Letter shall commence on the Start Date and continue until the End Date unless earlier terminated in accordance with the provisions below.

Start Date: End Date:

Termination Notice Period

Either party may terminate this Letter for material breach if the breaching party fails to cure such breach within the notice period specified above following written notice. Termination shall not relieve either party of obligations accrued prior to termination, including payment of fees and return of confidential information.

CONFIDENTIALITY

Each party acknowledges that during the course of performance they may receive Confidential Information of the other party. For purposes of this Letter, Confidential Information means non-public business, financial, technical, or operational information disclosed in any form.

Confidentiality Scope

Each party shall: (a) use Confidential Information solely for the purposes described in this Letter; (b) restrict disclosure to employees, agents, or contractors who have a need to know and who are bound by confidentiality obligations no less protective than those herein; and (c) exercise reasonable care to prevent unauthorized disclosure. Confidentiality obligations shall survive termination for a period of three years, except with respect to trade secrets where the duty to protect continues as long as the information remains a trade secret under applicable law.

GOVERNING LAW

This Letter shall be governed by and construed in accordance with the laws of the jurisdiction specified below, without regard to conflict of laws principles.

Governing State

ENTIRE AGREEMENT

This Letter, together with any exhibits or written attachments expressly incorporated herein, constitutes the entire agreement between the parties with respect to the subject matter herein and supersedes all prior and contemporaneous understandings, representations, and agreements, whether written or oral. No amendment shall be binding unless in writing and signed by both parties.

CERTIFICATION

The undersigned expressly certifies that the facts and statements contained in this Letter are true and accurate to the best of their knowledge, that the described business purpose is bona fide, and that they are authorized to bind the party on whose behalf they sign.

Business Name:

Printed Name:

By:

Date:

Title:

Recipient Name:

Printed Name:

By:

Date:

Title:

What a Business Purpose Letter of Explanation Is

A Business Purpose Letter of Explanation is a concise written statement that clarifies the commercial rationale, context, or factual details behind a transaction, application, or change in circumstances. Lenders, underwriters, tax professionals, and contracting parties commonly request this letter to document intent, explain unusual account activity, or describe the source and destination of funds. While the letter itself is typically a plain written declaration, it may be submitted as an electronic record and executed under ESIGN (15 U.S.C. ch. 96) or the applicable state UETA framework when offered and accepted in electronic form.

Why a Clear Business Purpose Letter Matters

A well‑crafted letter reduces confusion, speeds underwriting or review, and provides a documented explanation that third parties can rely on during audits or approvals. It helps avoid delays from follow‑up requests and clarifies the factual basis for business decisions.

Typical Users and Stakeholders

Different professionals request or prepare these letters depending on the context and purpose.

Lenders and underwriters who need documented explanations for deposits, transfers, or source-of-funds issues during credit review.
Accountants and tax preparers who require a written justification for transactions that could affect tax treatment or reporting.
Legal and compliance teams that need a factual statement to support regulatory filings, audits, or contract performance reviews.

Tailor tone and detail to the recipient: lenders require different emphasis than tax or legal reviewers.

Step-by-Step: Completing the Letter

Follow these steps to draft a concise, verifiable Business Purpose Letter of Explanation that reviewers can act on.

01

1. Identify Parties: List full legal names and roles for all relevant parties.
02

2. State Purpose: Provide a clear one-sentence summary of the business reason.
03

3. Provide Details: Include dates, amounts, and references to supporting documents.
04

4. Sign and Date: Have authorized signer sign and date the letter; notarize if required.

Typical Submission Flow for the Letter

Understand the common routing so you can prepare documentation that matches reviewer expectations and system requirements.

Prepare Document: Draft letter, attach supporting files, and convert to PDF.
Review Internally: Compliance or legal confirms wording and attachments.
Sign and Authenticate: Obtain signature and any required notarization or authentication.
Submit to Requester: Send via secure channel or eSignature platform.

Delivery Options and Platform Requirements

Choose a secure delivery method and confirm recipient acceptance of electronic records before e‑submission.

Integrations: Salesforce, NetSuite, Microsoft 365
File Formats: PDF, DOCX, or flattened PDF
Authentication: Email link, SMS code, or advanced ID checks

Essential Components of a Professional Letter

Include these elements to make the letter clear, verifiable, and useful to financial, tax, or legal reviewers.

Purpose Statement

A concise opening sentence describing the business reason for the transaction or action, written in objective terms for reviewers.

Transaction Details

Exact dates, dollar amounts, account numbers (last four digits), and other specifics that tie the explanation to financial records.

Context and Rationale

A short paragraph explaining why the transaction occurred and how it aligns with normal business activity or a specific contractual obligation.

Supporting Evidence

List and briefly describe attached documents—contracts, invoices, bank statements—that substantiate the explanation.

Authorized Signature

Name, title, signature, and date from an authorized representative; include notarization if the recipient requires it.

Contact Information

Provide a direct phone number and email for follow-up questions and to facilitate rapid verification.

Common Preparation Pitfalls to Avoid

Vague language that fails to identify specific transactions or amounts, prompting additional requests from reviewers or delays.
Missing supporting documents such as invoices or bank statements, which can lead to rejections or requests for further proof.
Mismatched names, addresses, or dates between the letter and attached records — a frequent cause of verification failure.
Submitting unsigned or improperly signed letters; lacking required notarization when the recipient or jurisdiction requires it.

Security and Compliance Considerations

Encryption In Transit: TLS 1.2/1.3

Encryption At Rest: AES-256 encryption

Audit Trail: Detailed signing logs

HIPAA Support: BAA available where needed

ESIGN / UETA: Compliance with ESIGN and UETA

21 CFR Part 11: Supported for regulated records

Short Risks and Penalties Snapshot

Tax Reporting: Backup withholding 24%

Incorrect Statement: Potential reporting penalties

Missing Notarization: May reduce evidentiary weight

Incomplete Support: Triggers additional inquiries

Intentional Misstatement: Severe legal risk

Late Submission: May affect approvals

eSignature Pricing and Feature Snapshot for Submitting Letters

Compare starting prices and core capabilities for common eSignature providers. signNow appears first per platform comparison conventions.

	signNow	DocuSign	Adobe Sign	PandaDoc	HelloSign
Starting Price	$8/user/mo	$15/user/mo	$14/user/mo	$19/user/mo	$15/user/mo
Free Trial	7-day free trial	Varies by plan	Varies by plan	Varies by plan	Varies by plan
Bulk Send	Yes	Yes	Yes	Yes	No
Audit Trail	Yes	Yes	Yes	Yes	Yes
HIPAA Compliant	Yes	Yes	Yes	No	No

How Electronic Submission Typically Works

Electronic submission follows a standard workflow from upload to signed PDF; understanding steps helps prevent avoidable rejections.

Upload: Place letter and attachments into the chosen platform
Tag Fields: Add signature, date, and name fields for required signers
Authenticate: Choose appropriate signer verification method
Deliver: Send signed copies and retain the audit trail

Frequently Asked Questions and Troubleshooting

Answers to common questions about preparing, signing, and submitting a Business Purpose Letter of Explanation.

Need help? Contact support

Do I need to notarize this letter?
Not always. Notarization depends on the recipient and the legal use of the letter; if the letter will serve as an affidavit or support a deed, notarization or witness authentication may be required. Confirm the recipient’s requirements before submitting.
Can I sign electronically?
Yes. Electronic signatures are valid under the ESIGN Act (15 U.S.C. ch. 96) and most state UETA statutes provided the recipient accepts electronic records and signatures and any required consumer disclosures are given.
What supporting documents should I attach?
Attach documents that directly substantiate the explanation—contracts, invoices, bank statements, or payment confirmations. Label each attachment and reference it in the letter to speed reviewer reconciliation.
How detailed should the explanation be?
Be concise but specific: include who, what, when, where, and why. State exact dates and amounts and reference attachments; avoid speculation or extraneous commentary that can confuse reviewers.
What happens if names or amounts don’t match?
Mismatched details often trigger verification requests, delays, or rejections. Ensure names, dates, and amounts exactly match the referenced records or explain the discrepancy in the letter.
How long will review take?
Review timelines vary by organization and context. For underwriting or tax review expect anywhere from 24 hours for minor clarifications to several weeks for complex matters requiring third‑party verification.

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