Applying for credit, whether for consumer purposes or commercial use, can be intimidating.
The more information you can share with your lender, the better able they are to determine what is in your best interest from a repayment and structure perspective. Having the information your lender needs readily available for that first meeting can go a long way in building a positive working relationship, allowing them to better advocate for your request.
Below I have outlined some key details to consider when preparing to meet with your lender:
PURPOSE OF THE LOAN
What will the loan proceeds be used for? While this may seem like an obvious question, it is important in that it helps drive the structure of a loan. Not only do lenders need to be assured the use of proceeds is legal, they also want to understand why the loan is being requested. This helps them match repayment terms with the asset being purchased while also preventing the borrower from being overextended. For example, credit card financing with higher rates is probably not the best way to finance longer term assets such as a car or equipment.
SOURCE OF REPAYMENT
Most borrowers seeking a consumer loan have wage and investment income, so providing documentation such as a paystub or W2 is often the best way to analyze their ability to repay. For a business, a profit and loss statement (also known as an income statement) or tax returns showing the operational performance of the business is important in understanding the cash flow available to service debt. Also, providing a balance sheet and an existing debt schedule provides the lender with information pertaining to existing leverage and debt payments, allowing them to more accurately assess a borrower’s ability to repay a new debt. If the business is seeking financing to help fund its operations, the bank may need to review its trading cycle. To that end, accounts receivable aging reports, inventory listings, and accounts payable aging reports would be critical to understanding timing gaps and the need for working capital.
SECONDARY STRENGTH
While lenders always focus on the main source of repayment, we all know that things do not always work out as planned. Lenders also need to understand the borrower’s financial strength, or the collateral being offered to determine if there is a viable secondary source of repayment should the need arise. Lenders will typically ask about liquidity, so providing bank statements or investment statements is helpful. Invoices, purchase orders, or equipment lists can be helpful in determining the value of collateral being offered. For certain transactions, a bank will require an outside third party to determine collateral value, such as an appraisal on real estate.
The more information you can share with your banker upfront, the better prepared they will be to meet your financing needs. At Community First Bank, our bankers have extensive lending knowledge, and our decision makers are local, leading to more flexibility and quicker response times for our clients. Our goal is to become Your Financial Partner For Life, so we view the success of our clients and our community as our success.
Melissa Callaway
Director of Credit Administration, Community First Bank
To learn more on our personal and commercial lending opportunities, contact us at (509) 783-3435 or visit the Community First Bank website for more information.
All bank products are offered by Community First Bank.
Community First Bank NMLS#409021. Member FDIC. Equal Housing Lender.
