Loan Application Submitted and What Next?Uncategorized
If you are applying for a loan, it is worth familiarizing yourself with its further fate in the bank, because it is during the next stages of the loan procedure that the decision will be made whether we will receive funding. After collecting all relevant data about the client, both financial and non-financial, and in the case of investment loans also information about the planned project, a detailed credit analysis begins.
Facilitate and systematize the process of assessing creditworthiness
banks are creating instructions that indicate, step by step, what elements should be included in the decision-making process. An example of such a procedure is the “Five Rule” (character, capital, capacity, conditions, collateral) used in American banks. It indicates all key areas that should be analyzed. To assess credit risk, it is necessary to understand the specifics of business and verify skills , experience, honesty of managers, owners. The size of capital (capital) available to the company, its financial situation and market position is assessed. The company’s ability to continue functioning and repayment of all liabilities (capacity) is also examined, including An important element of the analysis is determining the credit terms depending on the risk identified and the specifics of the company (conditions) and collateral verification. At the Ekredytarket you can find great credit analyzes prepared by specialists.
Before making a credit decision
The bank employees who perform the analysis must address a number of important issues and find answers to the following questions:
1. What is the purpose of the loan and is this purpose consistent with the bank’s credit policy (this policy may, for example, exclude financing trade in arms)?
2. Will the financed undertaking allow to generate funds for loan repayment (for example, will the planned purchase of the machine bring the expected benefits to the company)?
3. Is the loan amount specified correctly?
4. What is the client’s business, and to what extent is it subject to seasonal changes?
5. In what environment does the client operate, what impact do external factors have on the business, such as, for example, changes in legal regulations, rising fuel and energy prices?
6. Does the customer have all necessary permits, licenses, etc.?
7. What is the company’s financial condition?
8. What are the current and future cash flows, what will be the source of repayment of capital and interest?
In addition, a key element of the credit analysis is determining on the basis of historical data whether the applicant’s financial condition and creditworthiness does not raise any objections. Based on the assessment of the current functioning of the company, it is predicted what chance it has to survive on the market for repayment of the loan application.