Whether expanding your production capacity or penetrating the export market is what your SMI business needs, you will be comforted to know that banks offer a wide array of financing packages which can be tailored to suit your needs. A few common characteristics that define these financing options include low interest rates, long repayment periods and a high margin of finance. Depending on your immediate business requirements, you can have the option of settling for a fully integrated industrial property financing package which gives access to various resources such as industrial property and equipment financing, working capital financing as well as general and life insurance coverage.
Criteria in Assessing a Loan Application
In order to receive a loan from a bank or financial institution, loan applicants are required to display certain traits and produce certain information as a minimum requirement. The criteria for business loans often vary from bank to bank but the following are common areas that banks will generally assess in processing your loan application.
1. Purpose of Loan
This will help a lender ascertain if the type of loan applied for is suitable to a business. Here, the lender may be able to offer value-added services by advising loan applicants on the most appropriate financing option or tend to their queries.
2. Capital Invested
This helps a lender assess the level of commitment to a business by knowing the amount that will be invested in the business.
Details on collateral act as a safety net to the lender should the borrower default on loan repayment. Examples of collaterals against which banks or financial institutions lend include shares, fixed deposits, debts, automobiles, real estates and documents of title.
4. Financial Analysis
Credit analysts of banks or financial institutions will analyse the business to understand its financial condition by looking at the financial capability and strength of the company, size of assets and liabilities as well as profitability of business in the future. They will also want to ensure that there is no overlapping of financing to ensure that the loan applied for will be used for the purpose approved.
5. Character of Loan Applicant
The lender will be interested to know the financial history of a business by checking credit history and credit references to detect any occurrences of defaulted loan repayments and if there is recurring evidence of this nature, the loan application will very likely be rejected.
6. Management Ability and Experience
A lender will be keen to know more about the borrower’s ability, experience and character to determine if the business is governed properly and profitably. They may therefore, request for documents such as the latest annual returns filed with the Companies Commission of Malaysia, resumes of directors and key management personnel or the company’s organization chart.
7. Industry Trends
The decision of a lender to extend loans will also be influenced by industry trends. They will want to assess the industrial risks involved and will be keen to have information on the company’s market share, its key competitive advantages as well as its list of past and future contracts or sales orders in hand.
Generally, banks and financial institutions will inform a borrower of the result of a credit application within one month. If a loan application is unsuccessful, a formal notice in writing will be provided, explaining the reason for the rejection. However, unsuccessful applicants may still appeal in writing to their respective bank or financial institution. Common reasons for rejecting a loan application include:-
- Inadequate capital commitment
- Businesses with weak management
- Unsatisfactory financials
- Doubtful repayment ability
- High concentration risks i.e. overdependence on a single buyer/supplier