Steps involved in term lending by banks
The following are the steps involved while lending term loan to a borrower by the banker. They are:
1. Interview with borrower
2. Obtaining information about the borrower
3. Based on the information furnished, assessing the credit worthiness of the borrower
4. In addition to these, the following information will be obtained by the banker:
- details about the industrial establishment
- means of finance adopted
- cost of the project
- arrangements for marketing of products
- license formalities
- pollution clearance
- profitability and cash flow
5. Statements to be accompanied along with project
6. Estimate of cost of production
7. Estimated production and sales
9. Estimates of cost of project
10. Method of financing
11. Previous years’ performance
12. Loan amount and the period of repayment
13. Security that is offered
14. Scrutinizing the particulars
15. Arriving at a critical analysis of the borrower
16. Collection of data of a borrower
17. Fixing repayment schedule, rate of interest, and installment amount, etc.
18. Documentation of above details
19. Releasing of the loan amount
20. Post-sanction inspection
When a banker is appraising project, he takes into account four broad aspects, which are (a) financial, (b) technical, (c) economical; and (d) managerial.
In addition to these, the banking company will also look into the borrowing concern’s strength, weakness, opportunity and threat. It is called SWOT Analysis.
Strength: The bank will take into account, the strength of the borrower, from the point of view of project and its advantages over others. The borrower’s technical competence is also a strong factor.
Weakness: Competition, economic condition, obsolescence of the product/project.
Opportunity: Emergence of new markets, increasing purchasing power of the consumers, new use for the products; and expansion of the project.
Threat: Threat due to non-availability of raw material, labour, substitutes, are these factors are taken into account before finishing a project.