Friday, January 10, 2020

Application for a commercial loan



Application for a commercial loan


The process of applying for a commercial loan is strict compared to the standard procedures for obtaining a mortgage loan or a personal loan. This is probably due to the fact that commercial loans contain a higher risk element compared to other loans. Therefore, lenders should exercise greater caution and emphasis when evaluating commercial loan applications to minimize their risk exposure.

With that, the lenders evaluate their applicants based on the information provided to them, as well as their judgment on the viability and profitability of the business being financed. Therefore, business loan applicants must submit a loan proposal along with their applications in order to create a positive impression on the lender.

The first element of a loan proposal is an executive summary, which provides brief descriptions of the type of business and industry, the purpose and use of the loan, the proposed repayment conditions, as well as the planned loan period. After that, company information is provided, enriching the reader with the nature of the business, the location of the business, the history of the company, the products or services provided, the key differentiating factors of the company or product, The overall growth of the industry. , competitive information, growth potential and target customers.

It would be useful if you could include your company's marketing strategy, detailed product information, historical information and projected growth plans for the company. Apart from that, if you plan to incorporate extensions of products or services in the future, you must provide these descriptions within your loan proposal. If possible, geographic expansion plans will help in the proposal.

The next area to be shown in the proposal would be the credentials and experience of each member of the management team. The impressive credentials will give the lender the guarantee that the company is managed by responsible and capable people. This is important since having the wrong people who run the company could be detrimental to the business.

In any loan application, historical records are essential to be used in the evaluation of a company's performance. As new businesses do not yet have these records, the owners' financial records will be used as the basis for evaluation. Lenders also require tax return forms. All of these records provided must be the last copies less than 90 days old, with the exception of the tax return form.

If the loan is applied to an existing company in active operations, the financial statements of the company, including profit and loss accounts, balance sheets and the net worth reconciliation record must be included in the loan proposal. Again, all this information must also be the last and have less than 90 days. In addition, a list of accounts receivable and other short and long-term debts must be attached.

On the other hand, if the loan application is submitted for a new business, a pro forma balance and a profit and loss account must be provided. In addition to that, a cash flow projection is written for next year to indicate the possibility of recovering the debt. This also means that projected revenues, profits, costs incurred and expenses should be listed with definitive explanations provided, as well as a list of assumptions.

If you have assets that you want to use as collateral for your loan, the details of this should also be provided to the lender. It is often common for lenders to request two sources of repayment in the event that a source is in default. This means that if the business owner does not pay his payments, the guarantee can be sold to recover the debt.

Finally, other documents that are normally required for a loan application would be elements such as the article of incorporation, the lease agreements, the association agreements, the license, the references, etc. As the list of documentation, information and annexes required differs among the lenders, it is better to check with the individual lender about your specific information and the documents that should be attached to the loan proposal.