Head of AS Expobank Credit Division Staņislavs Samohvalovs
When choosing the most suitable partner for crediting, every entrepreneur should do some homework and look into the aspects that banks pay attention to when financing a company. A company’s corporate governance practice, tax liabilities, reputation, beneficial owners and business plan – these are just a few things banks consider. It is also a good idea for entrepreneurs to compare the conditions offered by different banks and flexibility of the potential funder, as well as it should be noted that both parties should meet each other halfway in case of any problematic situations.
When planning a crediting solution, entrepreneurs must take into account that, even in case of a thorough analysis and a detailed finance plan, there still might be changes that the company itself cannot affect and that are not included in normal finance planning. Changes can be both internal (broken equipment, departure of employees who are of high importance for operation) and external (overall economic recession, natural disasters, disproportionately fast changes in laws and regulations). It should be noted here that seasonal changes can be and should be foreseen and respective actions should be planned. Considering these aspects, professional and flexible choice of a crediting partner is one of the preconditions for being able to find mutually successful solutions, if necessary.
One of the criteria evaluated by banks is attitude towards the government and payment of taxes. When applying for a bank’s crediting service, companies should bear in mind that both an operational and annual report will be required, as well as a clear business plan based on calculations, confirming the capability of repaying the debt. The company also must not have tax debts. Banks also evaluate relations with other creditors, buyers and suppliers of the company, the potential risks of corruption, mutual relations of shareholders and other aspects.
When comparing offers from banks, an entrepreneur should pay attention to what financing solutions are offered by a financial institution. The most common ones are a loan or loan facility, and in addition to these, for example, Expobank also offers overdraft and factoring. A classical loan is issued as a single payment or in parts according to the project implementation project. Repayment takes place pursuant to a previously agreed payment schedule, which is why the bank’s flexibility is important when it comes to loan repayment term and making a payment schedule.
Every entrepreneur should also clearly define the purpose of the loan. Of course, it can differ in each situation. Purposes can be different in corporate lending – for IT development, to purchase equipment, to purchase real property or agricultural land, for construction or renovation of a building, to refinance existing liabilities or to implement other business needs. More and more often corporate lending is used to direct an entrepreneur towards green economy, for example, to install solar panels. In each case it is important to compare what is the minimum or maximum total funding amount set by the bank. It should be added that small banks are most often more flexible in this regard, which means that small banks tend to grant loans or loan facilities also in the amount of several millions.
Assessment of reputation is a two-way street — the same way as banks evaluate a company’s reputation risks, when companies choose a lender it is also definitely worth paying pay attention to the bank’s reputation and duration of its presence in the market. An equally important factor is individual approach to customer service and speed – while there are banks that can take up to a half-year to consider applications, small banks might implement this stage within 3-5 weeks and sometimes even faster.
Although entrepreneurs primarily pay attention to interest rates when choosing a bank as their lender, the so-called hidden costs, such as processing fees, are of equal significance. I would suggest to also note whether the contract provides for options of changing the payment terms or re-lending and the costs thereof.
In the beginning of lending process, every entrepreneur will want a flexible approach from the bank and a quick possible solution. Preference might be given to small banks in this aspect as well. However, entrepreneurs themselves should also be open to dialogue, carefully think through all details of the project, analyse the financial flow and consider all the possible aspects.
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Head of PR and marketing at AS Expobank