It must have a credit application form for use by its prospective customer/client. As a matter of policy, no credit extension should be approved and released, unless the customer/client had at least filled up a credit application form. The duly filled credit application provides the credit department. 1 . With initial credit information on which to base its credit decision, if credit decision has to be made without further credit investigation 2. Information on which to further interview the applicant 3.
With some “leads” on which to start the credit investigation process In order to guide the credit applicant, it would be DOD practice to give a listing of the company requirement upon his signifying his intention to apply for such a credit accommodation or loan. This way he will be able to find out whether he could comply with the company’s requirements. The following documents normally should be submitted together with the duly accomplished loan application. Individual 1 . Latest Income Tax Return 2. Marriage Contract (if married) Photograph Single Proprietorship 1 . Business Information Sheet 2.
Certificate of Business Name Registration with the EDIT 3. Income Tax Return audited Financial Statements 5. Statement of Assets and Liabilities . Photograph of principal/owner Partnership/Corporation 2. Copy of Registration with the SEC 3. Articles of Incorporation and By-Laws (for corporation)/Articles of Co-Partnership and Partners Resolution (for partnership) 4. List of Officers and Directors certified by the Corporate Secretary 5. Bio-data/Personal Information of Officers and Directors Annie Registration Certificate of foreign officers 7 Audited financial statements 8.
Board Resolutions to borrow or enter Into the requested facility in the amount of, and designate authorized representative to negotiate and sign in behalf of the company PRE-SCREENING Pre-screening is done by taking a cursory review of the application whether this is accurately and completely filled up and determined thru preliminary interview whether or nor the applicant is qualified CREDIT INVESTIGATION CONCEPTS Purpose of Credit Investigation CITE validate data about a loan applicant/borrower.
CITE gather, develop and analyze enough relevant information about the borrower to aid in formulating a sound credit decision. Credit Investigation is conducted on all credit applications to immediately ascertain applicant’s credit worthiness. It is intended to detect and eventually reverent extension Of credit to applicants with already unfavorable credit records. It covers in-house credit file verification and field verification. In-House File Verification All credit applications except those rejected outright are checked against existing credit and court case records.
In house file verification consists of the following: Credit File Verification – involves inquiry from existing credit records to determine if an applicant has past or present credit transactions with the company L]Court Case Verification – involves inquiry against compilation of names of persons against whom collection asses have been filed by creditors In-house verification is always conducted on borrower’s personal name, known aliases, trade or business name and also covers the following: Espouses. In case of married individuals, check on both the spouses whether or not one has entered into any credit transactions.
C]Co-maker, co-buyers or guarantor whether individual or business entity Self-impeded borrower, proprietorship or partnership check under both personal and trade/business name C]languidly applicant employed in family-owned firm, verification also covers the company Corporate accounts, verification is done on both reportage entity and owners/stockholders The name gathered as a result of in-house file verification must be ascertained to be of the same identity as the borrower or name of persons indicated in the credit application as icemaker, guarantor, surety, etc.
If the credit investigator has information that the name of the applicant is the same person as the name of a defendant in a court case, he should pursue his investigation to determine whether the applicant is the same defendant in the case Field Verification Field verification consists of the following: C]Residence/Neighborhood Verification – refers to the inspection of applicant’s residence address or locality and verification with the nearest neighbors and store owners in the vicinity to gather information regarding the applicant’s background and reputation.
It is conducted to: – Verify the applicant’s and spouse’s correct name including their middle names, aliases, ages and citizenship and likewise of their children – Verify the respective provincial addresses if there’s any – Determine house description with approximate lot and floor areas – Verify and confirm the exact residence of client – Determine the applicants length of stay in the said address ? Determine if lenient owns a vehicle and other household appliances – Determine the character of the client based on his reputation in the neighborhood and whether or not he is known thereat – Determine the client’s general living condition and type of neighborhood – Determine the personal data/background of the client Determine if the house is rented or owned by the client – Determine the number of children, their age and the school they are attending – Determine the income bracket of the applicant and the spouse C] Business Verification ? refers to the verification of information related to the applicant and related interest business.
It is conducted to: – Confirm/verify the nature of subject’s business, its legitimacy of operation and the profitability of the business, the exact address and position of the applicant – Know the form of organization and type of business of the applicant – Confirm if business is registered or not with respective government agencies – Check the business history including the date when it was organized, years of operation, number of employees, major line of business, its major products and/or services, major customers or clients, suppliers and bank accounts with pacific brand and account numbers – Check the neighborhood to determine the character of the client – Inquire from the administrator of the building if the client is holding business therein and the paying habits of the client – Compare financial information from the accountant of the business or owner against documents presented and other records that are related to the business – Check the business premises, if it is owner or rented. Its present locality and condition – Check if the business has branches or affiliates, fixed assets and fixtures, financial status which includes average monthly sales, receivables, inventories, capital, liabilities, average monthly income and last year’s sales C] Employment Verification – refers to gathering of additional or confirmation of information related to the applicant’s job.
It is conducted to: – Determine client’s employment status – Determine length of stay with current employer – Confirm position – Confirm compensation – Confirm client’s residence address O Trade and Bank Verification – determines the character of the client and his paying habit thru creditors. It determines the following: – Applicant’s accounts maintained with banks whether it is under current or savings, the dates accounts were opened – Average daily balance (DAB) – Present balance – Status of accounts (if it is active or dormant) – Bank’s experience in dealing with applicant ELEMENTS OF Individuals Identity of the Borrower CLC The identity Of the borrower should be firmly established. The Bank should know who it is dealing with.
Legally, the Bank cannot enforce its claim against a fictitious person or a person claiming to be somebody else. Further checking should proceed only after the identity has been accomplished. D Information should be obtained about the borrower’s age, health, character ND reputation, family life and relationships and his residence. These are sources of social pressure which may affect the ability of the borrower to repay a loan. C] Age of an applicant can affect his credit behavior. Young applicants should be fairly established in employment or business and exhibit ability to handle their financial affairs before incurring a loan. The remaining productive years of senior applicants must also be determined.
O The health of a borrower must also be investigated because this will affect his ability to work and generate income to repay his obligations. The general reputation Of the borrower should be established through residence and employment checking. This should cover habits and morals, his steadiness and dependability, his ability to manage his affairs, his general attitude toward contractual obligations and whether he is living within his means or not. The marital status of the applicant is a good indicator of the applicant’s stability. A stable family life is a good credit indicator as the borrower will certainly not do anything which will upset this situation.
A creditor lending to a family on the verge of breaking up is almost certain to have collection difficulties. C]The personal circumstances and status of the borrower’s dependents should also be investigated as this determines the demands on the borrower’s Income. Purpose and Motivation of the loan C] The intended use of the loan should be established; if used for unproductive purposes, the sources for repayment Of the loan may be diminished. L] BSP manual of regulations require that the purpose for a loan should be indicated in all loan transactions. C] use of the loan other than for the intended purpose is an Event of Default which will legally allow the ann. to demand immediate repayment of the loan.
Source of Income 0 The amount, regularity and expected continuity of the income as declared by the borrower should be established. Information should be gathered not only on the borrower but also on the income provider – the employer and the business firm, in case of self employed individuals. C] Demands on income such as living expenses and obligations with other creditors should be fairly calculated. It should be determined whether the borrower can still shoulder the additional debt burden of the proposed loan transaction with the Bank. The borrowers financial condition/net worth should be evaluated to show assets available as reserves in case Of liquidity problems.
The size Of the assets is also a determinant of the borrower’s thriftiness or the propensity to accumulate savings and credit patterns. Credit History and Paying Habits 0 The borrowers payment record on existing and past debts is an important predictor of credit behavior. Information to be obtained should include court cases, litigation, bankruptcies and repossessions involving the borrower. Corporate Borrowers Type of Corporate Borrowers and Focus of CLC 1 . Small/Family Held – CLC shall also include on the wines similar to the CLC for self-employed individuals. 2. Big Corporations with Diversified Ownership – CLC is centered on the amount of debt, credit history, cash flow and capability of the applicant firm. 3.
Corporation with Subsidiaries/Affiliates – Apart from the borrower-firm, CLC shall also include the subsidiaries and affiliates particularly if a big portion of the parent company’s income/cash flow comes from subsidiaries and/or the parent company has guaranteed a major portion of the subsidiaries debts. Identity and Motivation of the Borrower the CLC should first establish whether the corporate applicant is a duly stirred entity with the Securities and Exchange Commission. An unregistered corporation has no legal identity and no capacity to enter into contracts. C]Len reviewing the corporate papers, the CLC should be familiar with the powers of the corporation under its Articles of Incorporation and the powers of its officers/directors under the By-laws.
There could be certain restrictions on the powers of the Corporation and its officers/directors that may affect their capacity to enter into loan transactions. D The purpose of the loan should also be reviewed against the corporate powers and generally should Edmund to the benefit of the corporation. A profile of the people behind the corporation – incorporation, stockholders and principal officers ? should also be obtained as a gauge of management strength. C]Data should be obtained about the present operations of the applicant in terms of major product lines, suppliers, clients, market area and competitors. First-hand information should also be obtained about the corporations’ major facilities and assets.