Providing loans to business and consumers

1. PROVIDING LOANS TO BUSINESS AND
CONSUMERS
presented by:
Shumaila Bibi

2. PROVIDING LOANS TO BUSINESS
AND CONSUMERS
Types of loans made by banks
Factors determining the growth and mix of
bank loans
Regulation of lending
Establishing a written loan policy and steps in
the lending process
Credit analysis and sources of information
about loan customers
Handling problem loan situations

3. WHAT IS LOAN?
The act of giving money, property or other material
goods to another party in exchange for future repayment
of the principal amount along with interest or other
finance charges.

4. real estate
loans
Agricultural
loans
Auto
loans
personal
loans
short term
loans
long-term
loans
educational
loans
Types of
loans

5. FACTORS DETERMINING THE GROWTH AND MIX
OF BANK LOANS
 Characteristic of the market area its serves
 Lender size
 Expertise of management
 Loan policy
 Types of lending institution
 Expected yield

6. REGULATION OF LENDING
 provide information to members
 commercial/consumer related data
 2002 affect NPA recovery SARFAESI
(Securitization and Reconstruction of Financial and
Enforcement Security interest).

7. ESTABLISH A WRITTEN LOAN POLICY
one of the most important way a lending institution
can make sure its loans meet regulatory standards
and are profitable is to establish a written loan
policy. These elements include:
 A goal statement for the loan portfolio.
 specification of the lending authority given to each
loan officer and loan committee.
 lines of responsibility in making assignments and
reporting information.
 operating procedures for soliciting, evaluating, and
making decisions on customer loan applications.

8. STEPS IN THE LENDING PROCESS
finding prospective
loan customers
Evaluating a
prospective
customer's
character and
sincerity of purpose
Making site visits
and evaluating a
prospective
customer's credit
record
Evaluating a
prospective
customer's
financial condition
Assessing possible
loan collateral
and signing the
loan agreement
monitoring
compliance with the
loan agreement and
other customer
service needs

9. CREDIT ANALYSIS
1) Is the borrower creditworthy?
2)Can the loan agreement be properly structured and
documented?
3) Can the lender perfect its claim against the
borrower's earnings and any assets that may be
pledged as collateral?

10. SOURCES OF INFORMATION ABOUT LOAN
CUSTOMERS
information about business borrowing money:
 Financial reports
 copies of boards of directors' resolutions
 credit rating
 The world wide web

11. UNIT# 4
LENDING TO BUSINESS FIRMS
short term business loans:
 self-liquidating inventory loans
 working capital loans
 interim construction financing
 security dealer financing
 retailer and equipment financing
 Asset-based loans
 Syndicated loans
long term business loans:
 Term loans to support the purchase of equipment, rolling stock,
and structures
 Revolving credit financing
 project loans
 loans to support acquisitions of other business firms

12. ANALYZING BUSINESS LOAN APPLICATIONS
 your credit history
 your cash flow history and projections for the
business
 your collateral available to secure the loan
 your character
 capacity
 control

13. PREPARING SOURCES AND USES OF FUNDS STATEMENT
FORM BUSINESS FINANCIAL STATEMENTS
The Sources and Uses of Funds Statement As you can tell from its title, a Sources and
Uses of Funds statement shows the reader the information needed to get the "big
picture" of:
1. Uses of Funds: The money needed for various purposes for business startup,
including beginning quantities of supplies, equipment, and furniture needed, purchase
of building/land or costs of deposits for rent, and other startup costs.
2. Sources of Funds: Where the money for all funding is going to come from. You will
probably have a mix of different funds for different parts of your plan.
An Example of a Sources and Uses of Funds Statement
Uses of Funds
 Facilities Costs $120,000
 Equipment and Vehicles $325,000
 Supplies and Advertising $49,000
 Other Startup Costs $13,000
 Total Startup Costs $507,000

14.  Working Capital Required $100,000
 Total Uses of Funds $607,000
Sources of Funds:
 Owner Collateral:
 IRA $50,000
 Owner Savings $10,000
 Home Equity $30,000
 Total Collateral $90,000
 Total to be Financed $517,000
 Total Sources of Cash $607,000

15. PRICING BUSINESS LOANS