Presenting Your Request

Presenting Your Request


The way you approach a bank or other lending institution is all-important. Here are a few tips. Most are simply common-sense ideas, and you should always be guided by the elementary rules of courtesy and openness.


Know With Whom You are Dealing.

Unless you are already one of the institution's customers and know it well, find out all you can about the institution beforehand. Seek advice from your trade association, chamber of commerce, or local confederation of industry. Try to obtain a copy of the institution's annual report land review its affiliations, shareholders and directors. Brochures and annual reports, normally freely available in banks and other institutions, tell you a great deal about their structure, organization and services. Banks should also indicate their lending rates and give you a schedule of their charges and fees for services.


Give Prior Notice of Your Intentions

Call beforehand for an appointment or, write a letter or a fax setting out briefly who you are and what you do, how much you need, to borrow and why. Although you can conduct your transactions by correspondence, it is usually preferable to meet the person in charge of short-term commercial lending or trade finance. If the institution is far away, this will obviously not be possible, in which case you should be particularly careful about how you introduce yourself and what information you provide.


Be Well Prepared

Your banker is a busy person and needs to know rapidly the nature of your request: you should come quickly to the point. State who you are, your line of business, how much money you need and for what you need it. Be prepared, to provide your annual report (if you produce one) or your financial statements (balance sheet, profit-and-loss account, budget, business plan), as well as a company brochure. State clearly what you intend to do with the funds you want to borrow. If your intention is to finance the purchase of goods or essential for manufacturing products for export (or the purchase of commodities from producers for export), tell your banker the whole story: from whom you are buying, to whom you are' selling, how, you intend to pay and get paid. Speak to your bank about these matters before you sign contracts or agreements with your suppliers and customers or make payment arrangements.


Seek Advice

Experienced bankers can guide you and advise you on risks of various payment methods, on suitable ways to finance transactions and on the security you should provide as a guarantee for your borrowings. Remember to ask about hedging possibilities to cover or reduce risks of currency and price fluctuations.


Be Cautious

Resist borrowing more than you need, for too long, or at too high an interest rate. Banks sometimes propose the types of credits or payment methods with which they are most familiar, which are most remunerative, or which present the least risk. Ask about costs. Remember there are costs, fees and charges in addition to the interest rate. What about front-end fees? (These are payments deducted from the loan at disbursement to cover the lenders cost of evaluating your request, assessing the risk or opening the loan account.) What are the back-office fees? On each disbursement, for instance? If the advance is applied by the bank to purchase foreign exchange or to open a documentary credit, how much will it cost?

Most institutions have standard or sliding-scale rates for their services. Never hesitate to ask for a copy and seek guidance on how these rates will affect your transaction. If there are to be legal costs, such as lawyer's fees for drafting a loan contract or registering a charge on assets or a debenture, obtain clarification before committing yourself.


Avoid "Shopping Around"

Bankers will not like the idea of your shopping around for the best deal, visiting several institutions and making comparisons. If you say you have found a better deal elsewhere after they have spent hours with you, drawn up documentation and obtained clearance from their loans committee, senior management or board, you have wasted their time. There is, in fact, nothing wrong in trying to get to know the banking sector and wanting the best deal. But you should not give the impression that you are also talking to others after negotiations have reached the stage where the agreement is virtually finalized and awaiting management or board approval. The success of a good borrower-lender relationship is built largely on trust. Trust is developed over time and is the result of positive experience. A banker will often prefer to tryout a prospective customer by offering small, well-secured loans on a very short-term basis to see how it works. As transactions are successfully repeated, the customer's standing rises and his or her credit improves. When you approach an institution for the first time, bear this in mind. The cheapest lender may not, in the long run, prove the best.


Source: An Extract from “How to Approach Banks in India?” – A joint publication by International Trade Centre (Geneva) and SIDBI, 2002