Steps involved in lending term loan to a borrower by bank

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:

Steps in term lending
Steps in term lending

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:

  1. details about the industrial establishment
  2. means of finance adopted
  3. cost of the project
  4. arrangements for marketing of products
  5. license formalities
  6. pollution clearance
  7. profitability and cash flow

5. Statements to be accompanied along with project

6. Estimate of cost of production

7. Estimated production and sales

8. Cash flow statement

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.

SWOT Analysis

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.