Bank’s lending criteria for short term credit

Bank’s lending criteria for short term credit

Bank’s lending criteria for short term credit: There are no standard criteria for short-term credit. Banks and other lenders tend to set their own internal rules. Nevertheless, all financial institutions are bound by general regulations and guidelines established by the central bank. There is a lending limit per customer/group in Bangladesh as per section 27(3) of the Bank Company Act, 1991 that is fixed at 100% of the bank’s total capital. In case of the loan exceeding 15% of the bank’s total
, as a general rule, lenders may not capital, the central bank’s approval is required. Also, exceed a certain percentage of their credit portfolio (deposits from customers plus borrowings) for export credit.

Your request for short-term credit will have greater chances of success if you can satisfy the short-term lending criteria set out below.

Market Potential. Lenders should be convinced of the market potential of the goods and services to be traded. The related market report should be to the satisfaction of the lenders.

Good cash flow. As a borrower, you must show that your performance is positive and that operations are not only profitable but also generate sufficient cash to cover all commitments.

Adequate shareholders’ funds. You must not be already over-committed to other lenders, but have a reasonable proportion of your own capital in the business.

Adequate security. You will not obtain credit from a bank if all your assets are already pledged to other lenders. Usually, the letter of credit is taken as the prime security while extending short term export credit. Other securities are less emphasized in related lines of business.

Experience in trading. Most institutions like to know that you have a good record of successful trading.
Buyers’ Credit Report. The lending banks may obtain the overseas buyers’ credit report in order to ensure the realization of the proceeds from the buyers.

Good reputation and standing. Your references and credentials must be acceptable to lenders. But even assuming that your past is without blemish, it is helpful to have the backing of a reputable sponsor. This could be a well-known person in business, your trade association or even your customer or supplier. No default-borrower is eligible for a further loan from a bank or a financial institution as per the Banking Company Act, 1991.

Specific purpose. Although some lenders will be prepared to grant overdraft facilities on the basis of the security you offer, most institutions prefer to see their loans linked to specific transactions. In these cases, the transactions must be explained in full detail and shown to be profitable and self-liquidating (the money borrowed will be repaid from the proceeds of the transactions to be financed).

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Bank’s lending criteria for short term credit