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:
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.
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?
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.
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.