The importance of studying demand for bank loan by private business sector stems from the fact the money supply is ‘credit-driven’ and demand-determined and at the rate of interest determined by the central bank the money supply function is horizontal as illustrated by Moore & Threadgold (1985), Coghlan, 1981; Moore 1979, 1983. So, understanding demand for bank loan by private business sector helps in knowing monetary transmission mechanism, to formulate the effective monetary policy and thereby in achieving macroeconomic objectives. The purpose of the present study was to model the demand for bank loan by private business sector in Pakistan. For Univariate analysis Hylleberg, Engle, Granger and Yoo (HEGY) test is used. Autoregressive Distributed Lag Model (ARDL) Approach is followed to find the long run and short run dynamics. Bounds Test proposed by Pasaran and Shin (1995) is used to test the existence of long run relation or to test the cointegration among the variables. Real rate of return on advances, economic activity, expectations about future state of economy, macroeconomic risk, inflation and foreign demand pressure are taken as the determinants of demand for bank loan by private business sector. All the variables are found significant variables in affecting demand for bank loans by private business sector in the long run except foreign demand pressure. The signs of the coefficients of real rate of return on advances, economic activity, inflation and macroeconomic risk is negative whereas expectations about future state of economy is directly related to demand for bank loans by private business sector. The short run model shows that the speed of adjustment is 1.6% quarterly and 6.4% annually. The real rate of return on advances enters in the equation as 3rd lag of differenced variable and has negative sign. The impact of changes in economic activity does not affect the demand for bank loan very quickly and it appears in the short run equation as a 6th lag of differenced economic activity variable. Inflation has negative sign and first difference and its 3rd lag are significant variables in short run equation. The demand for bank loan by private business sector was found interest elastic and gives the provision to central bank to control credit in the economy through variations of interest rate. The analysis of impact of macroeconomic risk, inflation and expectations about future state of economy through lights on the need of bringing macroeconomic stability for expanding demand for bank lending and thus for expansion of businesses. Supervisor Prof. Dr. Abdul Qayyum