This is the most critical of all as the main reason why a bank reviews your loan request is to determine your credit worthiness.
To do this, the bank relies on your bank statements i.e. do your accounts get overdrawn, have your cheques ever been returned (bounced) as a result of insufficient funds?
A credit check will also be conducted from at least two credit bureaus to find out if you have non-performing loans in any financial institution.
Ability to execute the LPO/ Contract:
Often, it is expected that you would have executed similar contracts in the past. If this is the case, you will need to provide copies of such Purchase Orders or contract agreement, completion certificates, payment invoices from the contract employer and the bank statements that reflect these payments.
Bank
Commitment :
You will be required to make an equity contribution. This may vary from 10-20% of the cost of executing the LPO/Contract. For example: you have been issued an N10m purchase order to supply telephones and the cost of purchasing and delivering the telephones is N7m; your equity contribution will be 20-30% of N7m.
Payment Ability of the Issuer/Contract:
Whilst this is totally out of your control, the ability of the issuer of the LPO/contract to pay and also pay on time is often times a deciding factor on whether your LPO is financed by your bank or not. As this is the primary repayment source of the LPO finance the bank will want to be assured of the payment of the contract proceeds on time.
You may be required to show proof of payment from the contract employer; however the bank reserves the right to only finance LPOs from issuers that they are comfortable with.
Delayed payments of contract proceeds can have a negative impact on your profitability and your ability to repay the loan as a result of the prolonged interest payment.
Other areas which you have to consider include:
Are you a registered business or limited liability company? Do you have your registration/incorporation documents?
Validity of the LPO or contract- was it duly signed by a designated representative of the issuing company? Has the contract expired? Does the time before the expiry of the contract give you ample time to execute it?
Do you have invoices from suppliers? Are your suppliers local or foreign based? If foreign, what payment mode are you adopting- LC, Bills for Collection?
Have you reviewed the terms and conditions of the LPO/contract to ensure that you are able to abide by them. Are there some clauses in it that may make the bank uncomfortable?
