The Entrepreneur's Guide to Banks, Borrowing and the Practical World

Chapter  6

Steps in Applying for Bank Facility

We shall try and summarize our discussion about borrowing by detailing every step in the application of borrowing. This will allow us to understand each of the stages in borrowing discipline and, hence, remove any confusion and worry. We shall then explain each of these stages in detail in the following relevant chapters.

Identification of your need: The first step is to identify the capital that you need as a loan, or any other facility that you need from the bank. This will depend upon the stage of progress in the business that you are in. And you may be an absolute starter, in which case your need will be different than an established business.

Identification of your lender: This is the next step that you need to define. Some lenders specialize in one industry, while others are not quite comfortable to lend in that one. For example, some banks specialize in foreign business and letters of credit, while others do only the consumer loans. This will require some due diligence and information seeking from experienced people around you. They should be able to give you some direction as to which lender or bank to approach. Your professional colleagues, like CPAs and attorneys, would be very helpful in directing you to a right source.

Meeting with your lender: If you have identified the lender as your local banker, then the further step is relatively easier. With a right introduction for the banker, you may set up a time to meet him and explain your plans and needs.

Loan application: This is an involving process. This will entail collecting a lot of information about yourself and your business. It is not only the information you know about your business, but also some may be information that you may not even be aware of that the lender will want to know. More information you provide, the better it is for the banker to decide about your application quickly.

Loan application packaging: There are certain people and agencies who specialize in assisting you in compiling the loan application for presentation to your lender. They charge a small fee to do this work. If you are a novice, it will be a great help, since these packagers know through their experience to a large extent what is required by the lender in the loan application.

Commitment letter: This is a letter from a lender to you tentatively agreeing to provide the loan that you have applied for. There are certain terms and conditions that are spelled out. Some of these conditions define what their charges will be in terms of interest if they provided such loan, while others are conditions that need to be fulfilled to make this commitment turn into a real approval. This may contain that they expect the valuation or appraisal of the property, which is being provided as collateral, to appraise at a certain value. It will also provide for the condition that the property in question will be environ