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Credit Process

One thing that we need to keep in mind is that every exporter and importer has got their own requirements and certain criteria set while advancing funds. Some banks take this thing very strictly when it comes to take risk and thus it also helps in determining interest and repayment rates. You should be ready to have all the requirements and documents while taking a loan and thus we have mentioned below the main stages of a credit process when you apply for a facility.

How to apply for a loan

1. Application

The credit process takes place when you apply for a loan. Whenever a business of export import goes to the bank, for trade finance the bank makes sure that all the information that has been provided to them is full of truthfulness as why are they seeking a specific type of loan, about the person who is wishing to take the loan and some information about his company.

All the information regarding the company, person and other documents is necessary to give so that it is ensured by the government that all the information is realistic, you can take it further successfully and that you are also aware of where is this finance going to be used. Business formats require the following information mentioned below:

  • A brief introduction to the business, that also includes a future vision and the goals of the business and any significant accomplishments to date.
  • Information about all the key stakeholders/ or the directors that are included in the past experience and equity make up of the company
  • Proper introduction and an analysis of the product or services offered
  • Overview of the sector/ competitor landscape
  • Summary of anticipated results that includes all the financial forecasts.

It happens often that the lenders require some additional information which helps them to know more about the company or the directors. The information includes curriculum vitae, articles of association and memorandum for sure, the report of the profit and loss account of last 3-5 years etc.

2. Evaluating the Application

This step requires the lender to undertake a full fledged credit risk assessment of all the documents that he has received. This risk assessment involves things like some amount figures from the applicant’s income statement, balance sheet and cash flow documents. He also seeks to take the collateral that the SMEs provide.

The evaluation also includes some type of credit scoring process that takes into account the vulnerabilities for example, the market in which the business is going to enter, chances of default and the quality and integrity of the management. A to D the credit score’s ranking.

How does a lender determine the credit’s applicant?

  • Key financial information
  • Management / directors’ credentials
  • Operating market / sector
  • Risk of the transaction
  • Analysis of the collateral

3. Negotiation

All the SMEs who apply for trade finance have the right to negotiate with the lenders. As their main work is to maintain good relations with the lenders and secure their finance on the most favourable terms and price. Some of the terms that are non-negotiable are non- interest costs, fees and fixed charges, interest rates etc.

When you are all prepared and have understood the whole structure of the fees and charges, it helps you to negotiate the terms which are in your favour. You can also take some ideas from the local traders so that any risk is avoided before hand and you will also understand the charges and the structure of the loan and insurance.

4. What is the Approval Process And Documentation Of A loan

The account officer is allotted with a work to deal with all the applicants and collecting all the documents in order to the credit and risk analysis. The next step is going to the next authority or a committee to get an approval. If the loan is approved and agreed, it then goes to the legal team for ensuring that the collateral is now secured.

What is a loan document? It is a legal document signed contract from both the parties. The document includes definitions, a full description of the finance facility that has been agreed. The conditions required to take up loan, as well as the consequences of what will happen in case of any discrepancies or a default.

Repaying The Loans Once Approved

If you wish to maintain a good relationship with the lender, repayment of an approved loan on time is essential (it also ensures that the business has a good credit rating). Building your reputation as a borrower is a crucial aspect when growing a business – finance facilities and trade funding may not occur once in a lifetime and it becomes easier to get funding fast and easily once you establish a good reputation and a good connection with the lender. Contractual and legal obligations of a company are also important to be kept in mind while making a loan agreement.