Managing/Analyzing Loan Requests, Business Feasibility and Borrower’s Credibility

Topics: Debt, Loan, Credit Pages: 7 (2413 words) Published: June 13, 2008
Financing any venture is usually a challenging activity and finding the required amount of funds needed to achieve such venture is not as easy as just saying, “we need money”. Getting finance is a must for any business venture to succeed because money is required to make projects happen. Therefore, business owners and companies resort to borrowing many times to finance these projects.

To give a loan which is essentially to meet the financial demands of a borrower or supply part of the demands of a borrower is a very risky business which is both rewarding and can be really frustrating at times. Loans are essentially periods of credit giving to an individual, company or any other organization. Van Horne and Wachovicz, Jr. (2001) note that a loan agreement is a legal agreement specifying the terms of the loan and the obligations of the borrower.

Analyzing a loan request with a view of making a decision as to whether to give the loan or not, amount to give, period of repayment, mode of payment and grace period for payment and penalties for default is therefore important in order to make an effective lending decision that would result in a profitable endeavour for the lender.

During the course of this presentation I would emphasize more on what things to look out for when considering a loan request to merit a positive decision and I will also discuss two fundamental aspects of loan request evaluation, which are business feasibility and borrower’s credibility.


1. Clarity: A major factor to consider when evaluating a loan request is how professionally the loan request has been done. The request should be clear and straight to the point stating what the purpose of the loan is or are for. Hofstrand (2006) remarks with regard making a loan request, “when applying for a loan, be prepared to present all aspects of your request so the lender feels that he/she can make an informed and accurate decision. Put in writing what you want to do”. Based on this factor it is important that lenders should carefully check loan request for ambiguous statements, facts that do not match and dates that are inconsistent. These pointers should warn lenders to ask more questions, seek clarification before coming to a decision.

2. Organization/Company’s Background: This factor is also very important to consider in any loan request. The organization/company’s place in the industry, the management team, the organizational legal framework and history are crucial elements to look into when assessing a loan request. These elements would bring to the fore whether the firm is really in a good position to obtain the loan or not. For example where the management team of the organization is seeking for the loan just to rescue their own reputation because of underperformance and incompetence in the past, their track record would bring them out and should question an approval for such a request because it would bring with it a high risk of non-payment which I believe every lender does not desire.

3. Statement of Purpose: A loan request without a clear-cut plan for what it would be used for I think should not be considered right from the point of reception of the request. It is imperative that a good loan request should contain distinctly, concisely and legibly what it would be used for. Most firms I believe try to help prospective borrowers by printing forms that would guide such loan request. I think this is a good idea but I also believe that such prospective borrowers should understand what they need funds for and should be ready to defend their claim by writing it out clearly in an application.

4. Times and Proposed Schedule of Payment: A good loan request must have a time line for payment and schedule for payment. When a loan request is being considered the lender should carefully understand the commitment of the borrower to the terms that are being...
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