4. Cash Flow
The source of repayment should be ascertained at the beginning. As commercial banks, bank advances must, be largely confirmed to provide short" term finances to business customer. Hence financing the current assets of traders and manufactures. Would ensure that repayment would normally come from the sale of inventory and the realization of account receivable of our customers. If we are confident of the customer's ability to buy the right materials, at right markets and be able to produce finished goods which can be readily sold, at a satisfactory profit, there should be no doubt about repayment. Therefore, cash flow statements and profit projections need to be submitted by the borrower and carefully evaluated by the credit officers.
5. Conditions
From quantitative and qualitative information the bank need, to examine the conditions which the firm is operating. This requires identification of the factors that have up to now contributed to the success of .the business, and to
Examine factors change has recently occurred or is likely to occur in the near future which will adversely affect the profitability and prospects of the customs. Accordingly to nature and prospects of the customers' business need to examine will it continue to prosper, or will additional competitors or new competitors with the latest technology result in reduced profit margins? Is the product essentially required, in a wide market with continued demand? The industry conditions and the firm's place in industry and its market share need to be examined demand? The industry conditions and the firm's place in the industry and its market share need to be examined. An important quality here is the management's tendency to look and think ahead to anticipate and adapt to change by diversification or otherwise, which will instill confidence in the banker. For this purpose, it is necessary to maintain & update at the time of renewing the advances
6. Collateral
Since the bank is lending money, which it has, received form depositors, the bank must ensure that there is a second way out. Security is, therefore, taken as a form of insurance. In case the business plans of the borrower, do not work out, due to circumstances or developments beyond his control.
It is the final safe and credit officer should be able to identify appropriate assets, which would most suitably serve as security, in the given circumstances. The qualities which constitutes a good banking security are transferability i.e. whether a valid charge should be created by the borrower over his asset in favor of the bank should be such that the bank can obtain a good title with minimum formality and expense. Its value should be easily ascertainable and stable. It should be easily realized, in case of nee. Finally security be obtained & formalities completed before the finances is disbursed.
7. Purpose
Credit resources are scarce but have alternate uses- The unity's needs demand that banks put them to the best possible for which the finance will be used, within the credit policy the bank? In conformity with the country's laws, credit control and exchange control requirements. Is it a desirable one from the economic and banking viewpoint? Is it for productive of emulate purpose?
In short, they're in need to ensure mat the purpose is conductive & within the borrower's normal sphere of business activities and scale operations.
8. Period
Short-term advances are favored that is for not more than a year, renewable each year, if still justified. Accordingly the most usual purpose is to assist manufacturing and trading customers in their need to purchase current assets in line with their production or trading cycle, and seasonal loans for agricultural purposes.
Being a developing country, EBI do grant medium-term loans but to a limited extent, for the fixed- asset financing need industrial customers.
