Difficulties in Making Credit Decisions at Banks

Difficulties in Making Credit Decisions at Banks

Those who have applied to a bank for an investment loan know that banks give such loans “reluctantly”. Unlike corporate loans for working capital (overdrafts) for up to 3 years, loan applications for investment projects for a longer period are considered by banks for a long time, and success is not guaranteed.

Therefore, we will try to highlight the key features of the credit decision engine difficult process.

1. An investment Loan is an Individual Banking Product

An investment Loan is an Individual Banking Product

Investment loans for companies with terms over 3 years and project financing are not standard products, even for major banks. The procedure of decision-making about crediting is not automated, it is not regulated enough. Each project and enterprise is considered individually and very attentively.

So when getting an investment loan from a bank, you have to be ready in advance for delays and disruptions in the work, this process is not easy for the bank.

2. It takes a very long time for the bank to make a decision

The real-time between applying for an investment loan and the credit committee is rarely less than three months but often half a year or more, depending on the individual approach.

This can take several months. Going to the bank expecting to get the money for a project in a month is naive, to say the least.

3. The first criterion for a bank is the borrower

Banks most like to give money to those who do not need it. If your company is a major Federal player in an industry, if you have a diversified business with several independent lines of business, and you have decided to borrow money for one more project, which is much smaller than the scale of the entire holding, you are a welcome guest.

If the borrower is a small company, then the issue comes down to checking its credibility.

It follows that at the time of application to the bank, you should have a very clear idea of the legal scheme of your business, not only today but also after the start of the project.

4. The second criterion for the bank is sales

The second criterion for the bank is sales

You can make financial models and write beautiful business plans and presentations all you want, but the bank has only one question for the project itself: “Why do you think you will sell your products at this particular volume and price? The answer must be as specific and clear as possible.

The best answer to the sales question: “I have a customer, here he is. That is, for corporate sales, you need contracts, albeit preliminary, with potential buyers.

5. The third criterion is proof of cost

When coming to a bank and asking for a billion, you need to be able to explain clearly what this billion will be spent on. Moreover, then the bank will ask not only for a specific billion but for the list of purposes for which you were going to spend it.

6. People decide everything

When you go to the bank for a loan, you will interact with its employees. You will have a client manager. You may be able to talk personally with the analysts who are reviewing your project, sitting behind a wall. They are all people who may lack the time, motivation, or just professionalism to handle your application well. One employee can delay a project review at the bank for six months and then quit, forgetting to transfer the case to a deputy.

This process is very difficult to influence, but you can control it. Do not hesitate to call more often to find out, to ask for personal meetings, to find out the details. And at the first suspicion of malfunction, raise the alarm.

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