Sources of Finance

by Steve Rhodes

Article by Jo Bittof

If you’ve never applied for a bank loan before odds are you have no idea what to expect from the process.

There are different ways to apply for a bank loan. Often it is the TYPE of loan you are applying for that determines the approach. For example, if you are applying for a car loan you may be filling out the application at the auto dealership.

If you are applying for something like a signature loan, mortgage loan or business loan you may be applying directly with the bank or through online applications.

Talk with A Professional

Make an appointment with a loan officer at your bank. Sit down with them and discuss the type of loan you are seeking, what your goals are and a bit about your financial situation. The loan officer may be able to give you guidance and offer options you had not considered. You may be able to get a realistic estimate of the chances your loan will be approved.

Provide Your Information

One of the first things you will be asked to do is fill out a credit application. The application is the banks method of gathering demographic, income and credit history information about your.

Be prepared to give information such as:

· Name

· Address and Phone Number

· Date of Birth and Social Security Number

· Employment Information such as name of employer and length of employment

There may be other questions depending on the institution’s internal policy and the type of loan.

The Bank Analyzes Your Information

Using your applications a baseline the bank proceeds to investigate and determine how much of a risk would be involved in loaning to you. Their procedures may look something like this:

· With your name, date of birth, address, and social security number a credit report and/or credit score is requested from the credit bureau(s).

· The bank reviews the credit report to see how long you have had credit. If you have no prior credit it is difficult for a bank to assess the level of risk in loaning to you so it may be denied. The longer the length of credit the more ability the bank has to see how you have handled repayment of credit over time.

· Your credit score is based on a formula that meshes’ lots of data about you and creates a number that immediately tells the bank how much of a risk you are. Know your credit score.

· The credit report lists ‘inquires’ from companies you have applied for credit with. Lots of inquires are a bad indication, as it appears you are constantly shopping for credit.

· If your credit report shows slow payments, late payments, unpaid collection items and so forth you will be considered a very high risk.

· Your length of time on the job is a consideration because the bank wants to feel you have a reliable source of income to pay debts with.

· The bank will look at your ‘debt-to-income ratio’. They want to know what percent of your income is already committed to paying debt. This is a good indication of whether you can afford the loan. Know your on debt-to-income ratio.

· How long have you lived at your place of residence? The bank wants to know if you are fairly stable or do you move around a lot.

The bank completes its assessment and takes one of the following actions.

· Notifies you that the loan has been approved. In this situation you will be required to sign certain loan documents that set forth all terms and conditions of the loan. You will then receive the loan proceeds (money) or the asset obtained with the loan.

· Notifies you that the loan request will be taken to the next loan committee meeting. The ‘loan committee’ is usually made up of bank officers who meet periodically to hear presentation of loan requests that are either marginal, must go before the committee due to the size of the loan, the loan amount exceeds the loan officers cap for approval, or various other reasons. The committee hears the loan requests and votes to approve or deny.

· Notifies you that the loan request has been denied. In this case you should receive a document called a Notice of Adverse Action that will provide further information about the denial.

Do your homework before applying for a loan. You should be able to get a fairly accurate idea of whether you will qualify or not.

About the Author

Management development veterans Jo Bittof and Nancy Gehring Lowery founded Solutions Financial, LLC in response to the widespread need for basic financial life skills training. Solutions Financial founders have the hands-on, get down and dirty experience that it takes to Coach & Train You to Act Financially. Visit our website at (www.ActFinancially.com) and see for yourself.

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