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Position and Recommendations in the Development of a Revised Loan Application Process

Position and Recommendations in the Development of a Revised Loan Application Process
Banks offering credit or loans to local community development projects should have specifically designed loan application process that caters to the public institutions’ needs. As such, the following loan application process is proposed to enable accommodating review of the community development plan:

Prepare an eligibility criteria for the applicant to enable understanding basic loan prerequisites and requirements for application ;

Determine the specific community development activities where funds would be earmarked to (Office of the Comptroller of the Currency, 2014);
Request for a business plan with the following major components: credit history, cash flow history, collateral, character, and compliance with loan documentation requirements ;

The loan documentation requirements should contain the following:

Last three (3) years financial statements;
Last three (3) years income tax returns;
Evidence of ownership for collaterals presented for the loan; and
“A business plan that includes a narrative explaining the specific use for the
requested funds, how the money will assist the (community), and how the borrowed funds will be repaid (repayment sources and duration of repayment period)” .
On the part of the bank reviewing the loan application for the community development program, the loan officer should make a report that discloses the pros and cons (or benefits and costs) of providing a loan to the local community. The following basic documents should be integrated in the report:

Financial analysis (financial ratios, especially showing the impact of the proposed loan);

Projected financial statements that show the effect of the proposed loan to financial condition of the community, as well as capacities to pay;

Benefits to the bank: financial and non-financial (projecting positive corporate image, advertising mileage, social corporate responsibility);

Costs to the bank: risks of non-repayment, the need to continually interact with public officials, risks of volatility in banking rates policies with changes in political leadership; and
Loan officer’s recommendation based on weighing of costs and benefits.

References

Alliance Bank. (n.d.). What do Bankers look for in a Businss Loan Application? Retrieved January 11, 2015, from myalliancebank.com: https://www.myalliancebank.com/f8web/?uf=./PDFs/What+Do+Bankers+look+for+in+a+Business+(WebVersion).pdf
Calvert Foundation. (2014). Lending Criteria. Retrieved January 11, 2015, from calvertfoundation: http://www.calvertfoundation.org/lending/criteria
Office of the Comptroller of the Currency. (2014, March). CRA: Community Development Loans, Investments, and Services. Retrieved January 11, 2015, from occ.gov: http://www.occ.gov/topics/community-affairs/publications/fact-sheets/fact-sheet-cra-loans.pdf