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Business Loan Credit Process

Business Lending | Loan Package | Credit Process | Personal Financial Statement | Checklist

The first step in the credit process is review of your loan package by a lender. Bank of Ann Arbor has a legal and moral responsibility to make sound loans. Since the source of your loan funds is depositors' money and the law requires that this money must be repaid to them, it must remain in investments that are reliable. Upon initial review of your loan package, the lender will evaluate it based on the criteria known as the "Five C's of Credit."

1. Character – This criterion is exactly what the name implies. It involves a review of honesty, integrity, trustworthiness and management skills. A judgment is based on your business plan, credit history, and the quality of your presentation.
2. Capitalization – The capital structure of your company is important to a lender because it helps determine the level of risk associated with your loan request. An analysis of capitalization includes a review of equity, total debt, the value of assets and permanent working capital.
3. Cash Flow – This is the cash your business has to pay the debt. A cash flow analysis helps the lender to determine if you have the ability to repay the debt.
4. Collateral – This provides a secondary source of repayment, thereby minimizing the risk for the lending institution. The amount and type of collateral required depends on the type and purpose of your loan. Common types of collateral are accounts receivable, inventory, machinery and equipment, and real estate.
5. Conditions – This refers to outside conditions that may affect the ability of your business to repay the loan. Factors such as general economic conditions or large concentrations of sales to a single customer are evaluated during the lender's review of your loan application.

As all of these items are used to review your loan request, they should all be evident in your loan package to ensure a thorough lender review.

If the lender approves your loan, they will structure a loan to meet your needs. Each loan is customized to your particular situation. Portions of the loan which vary include:

• Type/structure
• Collateral required
• Term of loan
• Repayment schedule
• Interest rate

Upon approval by the lender, all the information is turned over to the Credit Department where a qualified Credit Analyst will put the information in a format to be approved by the Loan Committee or other personnel with lending authority. Once the lender receives a complete loan package from you, the credit process normally takes only a few days.

If you're ready to apply for one of our small business loans today, click on the final checklist link to begin. You may also meet our lenders prior to coming in.

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