Know the pillars of Commercial Lending

Commercial lending or commercial loan is something which is very hard to understanding. There is no hard and fast rule to understand the commercial lending. It’s all about experience which will make you perfect in commercial lending. However at the same time there are some fundamental principles which you have to follow with the commercial lending. Here are the factors which you must consider for a commercial lending.

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Commercial Lending

Cash flow: Cash flow statement of a firm wills certainly going to help you in deciding the commercial lending.  If there is good history of cash flow for a firm then there is chance that the firm will not be a defaulter in paying the commercial loan. Similarly from the cash flow statement of a company you can easily identify the movement of cash flow in and out for the organization. If you have noticed that a company has a track record of struggling financial record it is always advised not to recommend the commercial loan for the firm. Hence for a secure commercial loan you have to study the cash flow statement for the fir very carefully.

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The character of a firm: The thumbs rule for a commercial lending or a commercial loan is to test the character of the customer. As a banker you have to identify the character of the customer which he is enjoying in the market. According to the character you can proceed for the commercial loan. If the customer is enjoying a good reputation and have a strong character certainly it is advised to proceed for a commercial loan. To identify the character of a customer there is no such rule, all you need to determine is the strength, ability and the desire of the customer to repay the loan.

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Commercial LendingConsidering collateral security: The firm to whom you are paying the commercial loan, you have to access the collateral security of the firm and what are the extra properties the firm owns. In case the customer fails to repay the loan the bank can recover some money from the collateral security. As far as collateral security is concerned it can be movable property, immovable property or any sort of ancestral property of the customer accounts receivables, inventory, equipment and vehicle.

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Capital and condition for the borrower: Prior to sanction a commercial loan the banker has to identify the total capital of the firm. As far as capital is concerned, it consists of both the working and operation capital. From the banks prospective they have to make sure that the commercial loan should not be the only capital to run the business. Apart from the commercial loan the firm should have its own capital based on which the firm can run its own business. At the same time the Bank has to make sure that the firm should have some additional property and capital so that in case of the failure of the payment the bank can recover the money from the other sources also.

Commercial Lending