LOAN APPROVAL THOUGHT PROCESS

Loan approval thought process is a fundamental understanding which every business or individual who desire to access financing for his business or personal purposes must be abreast with. Every lending institution has basic thinking process for determining the loan proposal or application to honor. Therefore, before you approach any bank or lending institution for a loan, it is wise you take out time to understand their thought process and structure your loan proposal to give answers to the question they will like to find answers to.

This is fundamental because firstly, the person or bank you are going to meet for a loan may follow similar though process and you will need to provide the important information they need to assess you and your business.

Secondly, you will be demonstrating your business knowledge and professionalism by providing this information before they ever ask of it. This intelligent action will increase your chances of getting the loan you are requesting for. By providing this information, you also make their work easier, and simultaneously demonstrate to them your knowledge in financial matters. Since you can speak their language, you will get along with them better.

The following loan approval thought process of a traditional lending institution will be of great help in helping you structure an attractive loan proposal document:

1.     THE PRESENCE OF A FEASIBILITY REPORT: Every lender wants to see a feasibility study of your business. They need this to understand your business and ascertain its profitability and your expertise and management potential.

2.     DETAILED BUSINESS PLAN: This is a blue print for the execution of your business. It must embrace all aspect of your business. Lenders want to see a business plan that includes income and expenditure projections for the first three years of operation.

3.     MANAGEMENT: Management experience and expertise are fundamental thought process of a lender. Lenders need a certain feeling of assurance that a borrower has the necessary background and skill needed to effectively operate the small business.

4.     CASH INJECTION: Financial institution wants to know how much money the borrower has at risk. Some banks will require a third part of the money, while others require between 20-40% of the total cost of business funds to be covered by the borrower.

5.     PERSONAL CHARACTER: In addition to your expertise, a financing institution will also try to understand who you are as a person. In carrying out this exercise, some banks and individual lenders will conduct background checks that include detail information about you. They want to know if there is any previous case of litigation or bankruptcy.

6.     COLLATERAL: To reduce their level of risk in case of default, financial institutions often require a borrower to provide collateral to secure their loan. This can be office equipment, account receivable, buildings, landed property, or insurance policy depending on the amount of loan in question.

7.     PERSONAL FINANCIAL STATEMENT: Financial institutions like to see your personal financial statement of account. They like to see a list of personal assets and personal liabilities. In preparing your financial statement of account, do not include debt paid by your business; include other sources of personal income.

8.     CREDIT HISTORY: Lenders will like to see a good credit history. However, in some cases, there are some credits issues that you cannot afford to ignore. When it does happen, an explanation will be required and that you must honestly and intelligently give. Though, different lending institutions and individual lenders have different level of tolerance when it comes to credit issues, your honest explanation will give you a good position.

Whenever you want to approach a bank and or personal financial institution for a loan, try to include the above points into consideration. Provide a good evidence to convince them that your business need financing, and also that you have all it takes to manage the fund and stick to your repayment agreement as will be stipulated in your loan repayment plan. Once you are able to understand the loan approval thought process of a traditional lending institution, your loan application will receive a favorable consideration and approval.

Wishing you all the best!