THE PROCESS OF COMMERCIAL LENDING I

Six ways for banks' to make loans

Banks solicit loans
Buying loans
Commitments
Refin?ncing
Loan Brokers
Customers request loans

The loan process

Loan request
Business plan
Key elements of business plans:
The goal and objectives of the business
A description of the business
Strategies that the firm with use to complete
An operating plan to carry out the goals and
Strategies
A process to monitor the progress of the
. Plan and to revise it if the need arises
Financial data
Financial statements
Pro forma financial statements
IniUal interview
Evaluating a loan request
Character [personal characteristics of the borrower,
_honesty and attitudes about willingness and
commitment to p-aydebts] .
Capacity [the success of the business]
Capital [financial condition]
Collateral
Coriditions [economic conditions]
, Compliance [laws and regulations]

Other considerations in lending ,-

Diversification
Continent/country loan limits
Industry that.is considered too risky

J.
.structuring commerclal Ioan agreements
The contract Is structured to control the borrower to the
extent necessary to assure timely repayment of the loan.
All CBs have the following elements:
. Amount and terms of credH facilities
Type an amount
Documentation
Repayment
Interest rates and fees
,
Fixed or variable (floating) rate
Representations
A statement outlining the legal status of the
organization, its authority to borrow, and any
other relevant information
Covenants
Affirmative covenants
Negative Covenants
Financial covenants
Default
 Evaluating a loan request
Character [personal characteristics of the borrower,
honesty and attitudes about willingness and
commnment to pay debts]
Capacity [the success of the bus.iness]
Capital [financial condition]
Collateral
Conditions [econornlc conditions]
Compliance [laws and regulations]

Other considerations in lending

Diversification
Continent/country loan limits
Industry that is considered too risky

:..-.
Structuring commercial loan agreements
The contract is structured to control the borrower to the
extent necessary to assure timely repayment of the loan.
All CBs have the following elements:
Amount and terms of credit facilities
Type an amount
Documentation
Repayment
Interest rates and fees
Fixed or variable (floating) rate
Representations
A statement outlining the legal status of the
organization, its authority to borrow, and any
other relevant information
Covenants
Affirmative covenants
Negative Covenants
Financial covenants
Default
Loan Pricing
Determining what interest rate to charge the borrower and
how to calculate that rate. .
How to calculate effective yield
1.
i
loan Pricing .

~ ~ interest rate to charge the borrower and

how to calculate.that
\. .'
rate.
How to calculate effective yield