Question

Assume that you are a commercial loan officer for a bank and are preparing to meet with a corporate client. The client has approached you seeking an increase in the loan it has with the bank. Prepare a list of things that you would want to know about the company’s operations before you decide whether to approve the increase in the loan

Please help!

Answer 1

The list of the things, I would consider before improving the increase in loan are as follows-

A. Creditworthiness of the buyer-I would check into the credit worthiness of the company to approve the loan and look for the recovery capability from the the company.

B. Past performance related to the previous loan also needed to be checked while extension of the loan.

C. Liquidity ratios must be factored into, so that I would be assured about the cash holding position of the company in order to service the debt repayment schedule

D. Solvency risk associated with the firm and other debt which have a priority on the collateral will also determine my choice of providing an extension to the current loan.

E. I would also look for various profitability and efficiency ratio in order to look into, whether the company have enough assets and profits to repay the loan.

F.I would also be looking for the coordinated approach from the management of the company and the dedication of the company in order to pay off the credit.