REQUIREMENTS OF
APPLYING FOR A
PERSONAL LOAN
BUSINESS FINANCE
(FROM THE BOOK)
MARY ANN D. LEOPANDO
✓happens when the
owner of a property
or money allows
another party to use
the property or
money.
✓The borrower
promises to return
the property after an
agreed period of time. LENDING
The payment for
the use of
property or
money is called
INTEREST
•A document of
agreement that
connotes a promise
to pay back the
owner for the use
of property or cash
PROMISSORY
NOTE
It is the obligation to
pay back property or
cash borrowed in
accordance to an
agreement, and this
may be in the form of
notes, bonds or
mortgages.
DEBT
• A loan or a money
extended to a person
or business in
exchange for a return.
Once issued it
becomes a debt of a
borrower.
CREDIT
•When this money is extended ,
there is a pre-agreed covenant,
such as how long the credit
payment is to be extended, how
much, and much will be returned
(principal +interest) , how
frequent, and what interest rate.
✓Holds the important role
in analyzing the financial
track record of a person
or the business that
borrows, as well as its
financial transactions.
✓He/she determines the
credit rating of the
borrower by looking at
trends and forecasting
CREDIT ANALYST potential payback on the
loan
• The Credit Analyst (CA) evaluates the
borrower’s financial standing by reviewing
his FS.
• When the borrower is a company , CA will
evaluate statistics and analyzes corporate
records including:
✓Payment plans
✓Savings data
✓Payment history
✓Purchase activity
•Based on the mentioned records
the CA makes a recommendation to
his lending officer whether to
extend credit to the borrower or
not, after determining his credit
worthiness and/or credit limit. The
CA’s jobs involves a lot of critical
thinking, judgement, and decision
making.
An evaluation of the
credit risk of a
prospective debtor,
predicting their
ability to payback the
debt, and an implicit
forecast of the
likelihood of the
debtor defaulting
CREDIT RATING
WHAT AFFECTS CREDIT
RATINGS?
1. ABILITY TO PAY THE LOAN
✓This mainly focuses on the security of the
person’s job, business and/or the security of
the company that employs you. This is to
take a look at the condition of the borrower.
✓Does he have the ability to payback the loan
borrowed?
2. CHARACTER OF THE BORROWER
Are you trustworthy? Do you have a history of
trouble of the law? How long have you lived in
your present address? These are the questions
asked to establish the character of the borrower
and his attitude, priorities with regard to debt
payments. Will he prioritize debts payments or
will delay them? Will he exhaust all efforts to be
able to make good his promise to pay or will he
relax and dilly dally and not take his debt
seriously.
3. CAPACITY TO PAY THE LOAN
Does he hold a stable job or have a stable
source of income if he is in the business?
What are the other sources of income and
what are the current debts? These will
determine the borrower’s capacity to pay
his credit card debts. Is he in a situation
wherein he can afford to pay his debts?
• 4. CAPITAL AND PERSONAL ASSETS
• Determine the value of cash, property
and other investments. Do assets
exceed liabilities? Will saving and the
value of property be able to pay for all
debts?
• 5. COLLATERAL AND SIZE OF BUSINESS ASSETS
• If payments to credit card debts are delayed and/or
irregular, this maybe an early indication of cash flow
and payment problems, and illiquidity, which could
eventually find itself to major problems such as
bankruptcy.
• When this situation happens, the creditor will look at
real assets or property that can be liquidated and sold.
Such proceeds will be used to pay off the loan.
CREDIT HISTORY
Is a record of a
borrower’s
responsible
repayment of debts
CREDIT BUREAU
✓Is the agency that gathers
information about the credit
history of the borrower and
sells this information for a fee.
✓In the Philippines , the banks
keep credit information
private and confidential. This
is for security reasons. Unlike
in the US where credit
bureaus have been recognized
and existed for quite some
time, the credit information in
the Philippines is more
limited.
✓The inability to pay
debts on time when
they are due. It is not
the same as
bankruptcy.
✓It is insufficiency of
cash flow and is
temporary. It is a
matter of timing.
✓Why is it important to
INSOLVENCY
know between the two?
✓INSOLVENCY or illiquidity is
already and indication of trouble.
✓The acknowledgement of insolvency
is a step toward managing your
credit better.
✓It is a legal process
wherein assets of a debtor
are distributed to creditors
to be able to pay his debts.
✓If somebody suffers from
debt problem; the last
remedy is to declare
bankruptcy.
✓It includes a plan to repay
creditor on an installment
basis. Declaring
bankruptcy severely
damages one’s credit rating
BANKRUPTCY
WHAT IS YOUR PERSONAL NETWORTH
✓Your NETWORTH is the value
of your assets, bonds, jewelry
collection, insurance, and art
collection.
✓The net worth value is
deducted from your debt
including credit card debts,
monthly bills, auto loans,
home loans, and medical bills.
LOAN AMORTIZATION AND THE
LOAN APPLICATION PROCESS
• The bank will assess the personal loan on the
basis of the borrower’s financial capacity. The
following are some information the business will
ask:
• What is his age?
• What is his occupation?
• Where does he live?
• How many cars does he have?
• How many children does he have?
• What is his business?
• If it is business loan, the application will ask for
information to be able to determine the capacity
of the business to repay the loan.
✓What is the nature of the business?
✓How long has the business been in operation?
✓How much revenues accrued in the last 3 years?
✓How much profits for the last 3 years?
✓What is the size and value of the business?
✓What is the size and value of the properties of
the business?
•As soon as all pertinent information
is available, the Loan Officer will
forward the application form to his
manager who will forward the same
to the Credit Officer, who will assess
the credit paying ability and request
for loan approval from the Credit
Committee.
✓This group of officers represents
the financial institutions,
creditors and/or investors that
have claims on a company that
is in financial difficulty or
bankruptcy.
✓Their roles begins with
approving the credit line and
credit terms for a business,
monitoring the payments
CREDIT schedule as agreed on, and filing
for bankruptcy or initiating the
COMMITTEE claims procedures if the
business operations fail.
•THE VERY IMPORTANT Cs
OF CREDIT
CHARACTER
✓Who is the borrower?
✓The CA establishes his identity and character,
and his willingness to pay his loans.
✓This enables the lender(banks) extending credit to
determine whether the borrower will remain
committed to his promise to pay the loan or
money borrowed.
CHARACTER
✓How long has credit been used before?
✓How long has the borrower lived in the
present address?
✓How long has he held the same job?
CAPACITY
✓This is establishing the income and debts that the borrower
already has. This will affect his capacity to afford any
additional debts.
✓If the amount big relative to income, lenders would
probably no longer extend the additional credit, as his
ability to pay now diminishes.
✓Establishing the sources of income, employment stability,
cash flow of the business, and stability of business
operations
CAPACITY
✓Who is the current employer and
how much is the current salary?
✓What are the other sources of
income?
✓What are the current debts?
CAPITAL
• This establishing the borrower’s assets,
cash, property, personal possession, and
investments in stocks or bonds. The lender
will look into the borrower’s total assets if
these exceed his liabilities or total debts.
They will establish if there is enough to pay
all debts, so even if income is lost, selling
these assets would be able to pay all the
debts.
CAPITAL
✓What are his/her assets?
✓What are his/her liabilities?
✓Are the assets enough to pay for
the debts?
COLLATERAL
✓If the loan extended to the borrower is not
paid , the creditor will look at real estate
owned, or any other savings, as these can be
offered to secure a loan.
✓What assets do you have to secure the loan
(a vehicle, your home, furniture)?
✓What investments or savings do you have
(stocks or bonds)?
CONDITIONS
•General economic conditions such
as unemployment and recession can
affect the ability to pay a loan. This
important C focuses on the security
of your job and the company that
employs you.
IMPROVING YOUR CREDIT SCORE
✓Pay your bills on time
✓Lower your balances
✓Set a monthly date wherein you can pay a certain
amount regularly if you are not able to pay the entire
balance
✓Target paying the entire balance all the time
✓Delay or forgo unimportant purchase like luxury items.
✓Use credit wisely
