Loan Proposal Preparation and Approval
Loan Proposal Preparation and Approval
The quality of a loan proposal is a key factor in achieving the results for a business. It can make the difference between a ‘yes’ and a ‘no’ to a loan application. An effective loan proposal should be prepared such that it is a proxy for a credit submission within the financial institution. It should deliver a good understanding of the business or group, and satisfactorily address all credit risks. The structure should contain purpose of the credit, background of the business, details of the existing and proposed facilities and securities ownership structure, management, overview of the business/project, financial analysis debt service/repayment/security and summary & recommendations can be applied to most loan proposals. However, depending on the situation, it may be appropriate to change the order in which things flow or add sections to address issues specific to the business. The
objective when writing content under each heading is to progressively build a brief well- argued financing case through critical assessment of the business and/or the transaction. What?”, “Why?” and “How?” are the questions one should be constantly asking himself during this process. Apart from giving business the best chance of getting a ‘yes’, a good loan proposal can significantly shorten turnaround time and limit the number of extended piecemeal requests for information. The effort in putting together a well-thought out proposal is minimal compared to the benefits to all parties involved.
Credit Approval
The authority to sanction/approve loans is clearly delegated to senior credit executives by the Managing Director /Chief Executive Officer and Board of Directors.Approval authority is required to be delegated to individual executives based on the executives’ knowledge and experiences. The recommending/ approving executives should take responsibility for and be held accountable for their recommendation/ approval. Delegated authority including capacity of approval must be reviewed annually and the pooling or combining of authority limits of different executives should not be permitted Considering the size and strategy of the bank, approval function is centralized in some banks. However, approval functions are generally decentralized in zonal, divisional, and branch level. In case of centralized system, irrespective of amount, there is an approval authority in the head office level.
