Under unsecured loan means a loan issued by a lender without any collateral. Unsecured loans are also called unsecured borrowing... The most common form of unsecured lending is credit cards.
For what reasons do lenders offer unsecured loans?
If the loan is secured, the lender's risk is minimal. One of the safest types of loans for a lender is a mortgage - in case of negligence of the borrower, the lender can take back the apartment purchased by that. Unsecured loans are a big risk for the lender, because if it does not repay, the lender most often loses.
The main reason why banks offer clients unsecured loans is high. The banking industry is because, if it is necessary to get a loan, a person has the right to choose among the many options the most favorable conditions for him. By making the registration procedure as convenient as possible for the borrower (including eliminating the need to deposit and attract guarantors), the bank receives until the other market players begin to act in the same way.
Features of registration of an unsecured loan
The features of an unsecured loan include the following:
- The conditions are always less favorable than for a secured loan: the repayment period is shorter and the interest is higher.
- Unsecured loans require the potential borrower to provide a certificate of the level of wages. Some institutions can lend without such a certificate, but the interest will be so high that such a loan will simply be unprofitable for the borrower.
- The amount of an unsecured loan is limited to a rather low level - the borrower will not be able to get a lot of money.
- It is impossible to get a loan without registration. At the same time, financial institutions are actively lending to citizens with a temporary residence permit and stateless persons, but only for a period not exceeding the period of validity of the temporary registration (as a rule, 3 months).
- It is also impossible to get an unsecured loan if you have at least a minimal tainted credit history. There is enough information about at least one delay, and the bank will refuse.
- The bank may oblige the borrower to purchase an insurance policy along with an unsecured loan, compensating for the excessive risk with additional income.
Unsecured loan terms
The maximum amount that a borrower can receive without collateral is 500 thousand rubles. The term is limited to a maximum of 3 years. Due to high interest rates, the borrower's debt may double in 3 years, so he seeks to repay the loan ahead of schedule, which negatively affects his credit rating (this article tells about how the credit rating is formed). Are becoming more and more popular unsecured commodity loans- having completed the application, the buyer waits for a decision for 20-30 minutes and, if approved, leaves the store with the purchase without paying a single ruble.
Benefits for borrowers
The main advantage of an unsecured loan for a borrower is the speed of processing: it will take a maximum of 3 days to get a decision. A secured loan requires more time, since there is a need to assess the collateral. Another plus is the ability to use the money at your own discretion, which favorably distinguishes unsecured loans from targeted loans.
The main disadvantage is high interest rates - the borrower is able to neutralize with the help of sureties... The guarantor can be a relative or friend (or several people) who has a suitable income and an unblemished credit history.
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Secured and unsecured loans are forms of debt, the main difference between which lies in the terms of the transaction. A secured loan always has a guarantee of repayment of the borrowed funds, while its unsecured counterpart is based solely on a fiduciary basis. The lender, issuing money, does not require guarantees from the client in the form of a pledge or the involvement of guarantors.
Secured loans
In secured lending, the financial institution accepts a liquid asset, such as a car, real estate, or high-value equipment, as collateral. The presence of collateral allows for lower interest rates, making the borrowing process safer for the lender and more affordable for the borrower.
Benefits of secured lending:
- Low interest rates.
- Long terms of financing (up to 50 years).
- Mortgage loans can participate in consolidation and refinancing procedures.
- Relatively small recurring payments.
- The possibility of early repayment.
An unsecured loan is the most affordable form of lending, but it is not without its drawbacks. If the client, for one reason or another, misses several regular payments, the risk of loss of the mortgaged property increases. The bank will demand a pledge if the transaction is recognized as hopeless. The asset that is offered as collateral is put up for auction. This can mean the loss of personal property, which is often the borrower's home or car.
Disadvantages of a secured loan:
- The complexity of the design. To obtain a loan, you will have to go through the scoring procedure (checking the borrower's rating), providing an extensive package of documents for verification.
- The risk of loss of personal property as a result of late payments.
- Hidden payments and additional paid services.
- Strict requirements for the borrower. The money can only be received by a client with a good credit history.
- Long-term borrowing of large sums of money carries the risk of serious overpayment.
- The targeted nature of the loan. The bank will have to provide information regarding the purposes for which the money is planned to be spent.
Large loans, including mortgages and consumer loans, are secured. The loan object is usually used as collateral, that is, real estate or equipment acquired on loan. Additionally, the object is insured for a large amount. Thus, in the event of an emergency, the borrower and lender can receive compensation to cover the lion's share of debt obligations.
Unsecured loans
An unsecured loan is not tied to any asset, so the financial institution bears the risk of default. In order to justify the possible costs, the lender deliberately raises the interest rate. While banks are usually involved in the issuance of secured loans, non-guaranteed forms of borrowing attract the attention of microfinance organizations and private lenders, who rely on the high speed of processing the transaction.
Benefits of unsecured loans:
- Instant consideration of the application.
- Registration remotely through the official websites of creditors.
- No requirements regarding the provision of an extensive package of documents.
- The ability to use money to cover extraordinary expenses.
- Refusal from additional paid services, including compulsory insurance.
To offset the increased risk of default, lenders charge high interest rates on unsecured loans, making this form of loan potentially the most costly way to finance time costs. For this reason, most unsecured loans are made solely to cover small personal and unplanned expenses.
Disadvantages of an unsecured loan:
- Extremely high interest rates.
- Insignificant lending terms (no more than 360 days).
- The presence of strict credit limits.
- The risk of running into scammers.
- The presence of hidden fees, especially in the field of "interest-free" lending.
If a potential borrower finds that he urgently needs to cover unexpected expenses, he should apply for a fast unsecured loan. When a car urgently needs repair, a serious breakdown occurs in the apartment, or loved ones go to the hospital, non-guaranteed loans become the only available way of financing.
Unsecured or Secured Lending?
Forced debt collection by attracting guarantors or selling mortgaged property in most cases remains an extreme method of a financial institution's fight against unscrupulous borrowers. In the overwhelming majority of cases, creditors are ready to meet those clients who, for a good reason, cannot pay off the debt.
Usually a controversial situation ends with a revision of the terms of the deal. Methods of consolidation, restructuring and refinancing of debts can reduce the financial burden. It is easier for a lender to offer the borrower such services than to spend resources on the sale of collateral.
Non-guaranteed loans are more expensive for the borrower. In addition, no one will prevent the creditor from suing the property of the client who has delayed the payment of the debt. The procedure does not fundamentally differ from the seizure of bail, although slightly different methods of legal proceedings are used.
By comparing both methods of lending, the following conclusions can be drawn:
- A secured loan is an ideal choice for long-term lending. Despite the strict requirements for the borrower, such a method of financing will allow you to acquire expensive purchases. Banks consider the package of documents submitted by the client within a couple of days, after which they decide to issue money on mutually beneficial terms.
- An unsecured loan is suitable for a client who urgently needs money. This form of borrowing will cost more than its secured counterpart, but it will take from 30 minutes to 24 hours to complete the transaction.
Whichever form of lending the borrower prefers, it should be understood that the results of financing will depend solely on the ability to manage money. By repaying debts on time, the client will improve his credit history, getting rid of the risk of litigation with a financial institution.
Financial managers recommend choosing the loan that best suits the needs of the borrower. Despite the many offers in the field of lending, knowing the pros and cons of each type of loan will allow you to choose the best conditions for financing.
One of the loans provides for the provision of personal property as collateral, while the other does not. There are pros and cons to each type of loan.
Secured loans
A secured loan provides you with a property, be it a car, house, boat, stocks or bonds. The name "secured loan" is due to the fact that if you are unable to meet the regular payment, the lender can take your property in order to provide himself with financial risk protection.
Lenders register the right to hold the pledged property as collateral until the loan is paid off. A mortgage is a type of secured loan where the lender regains ownership of the property if you do not make payments.
Secured loans can be issued for any amount of money necessary to buy something, as long as the lender feels that the collateral provided is sufficient to obtain the loan. Your income and credit history will also be taken into account.
Getting a loan secured by real estate is basically the only way to get very big money, for example, to buy a house.
Unsecured loans
An unsecured loan, more commonly known as a personal loan, does not require any collateral. The loan will be provided under an agreement signed by the borrower and the lender of the unsecured funds. Loans with credit cards, lines of credit or student loans are the most common types of unsecured loans.
Since there is no collateral, getting an unsecured loan depends on your credit score and income. The driving factor in determining the interest rate and the size of the loan will depend on how you work.
Pros and cons of these loans
Unsecured loans:
- They are fairly easy to obtain; however, this does not mean that you will be in an advantageous position. But at the same time, you can get a high interest rate credit card with an annual fee.
- This type of loan paves the way for lines of credit, which, although relatively small, become essential in emergencies and in daily activities. But they are not suitable for large purchases such as a car or a house.
- They depend on your income and credit score. If you don't have one of the points, then don't expect high interest rates. In some cases, you may be denied a loan at all.
Secured loans:
- They often have lower interest rates than in the previous example.
- Obtaining this type of loan takes much more time.
- They can be large enough for large purchases, but are subject to collateral.
- They carry great risks, especially as they require expensive collateral.
If you need a loan to buy a home or car, you probably need a secured loan. If you just need a little cash or a couple thousand dollars, you should consider taking an unsecured loan or line of credit specifically.
In any case, never take more than you can repay.
Secured is a loan secured by a pledge that meets two requirements: first, its real value is sufficient to compensate the bank for the principal debt on the loan, all interest, as well as possible costs associated with the exercise of pledge rights; secondly, all legal documentation regarding the bank's pledge rights is drawn up in such a way that the time required for the implementation of the pledge does not exceed 150 days from the day when the exercise of pledge rights becomes necessary for the bank (the need to exercise pledge rights arises no later than 30 -th day of delay by the borrower of regular payments on the principal or on interest).
Insufficiently secured is a loan secured by a collateral that does not meet at least one of the above two requirements.
Unsecured is a loan that has no collateral or is secured by collateral that does not meet the above requirements
4. According to the level of credit risk, that is, the risk of non-payment by the borrower of the principal debt and interest due to the lender within the period established by the loan agreement, loans are divided into five categories (see Regulation of the Bank of Russia dated March 26, 2004 No. 254-P):
II category of quality (non-standard loans) - moderate credit risk (the probability of financial losses due to default or improper performance by the borrower of obligations under the loan determines its impairment in the amount of 1 to 20%);
III category of quality (doubtful loans) - significant credit risk (the likelihood of financial losses due to default or improper performance by the borrower of obligations under the loan causes its impairment in the amount of 21 to 50%);
IV quality category (problem loans) - high credit risk (the likelihood of financial losses due to default or improper performance by the borrower of obligations under the loan causes its impairment in the amount of 51 to 100%),
V (lowest) quality category (bad loans) - there is no possibility of loan repayment due to the inability or refusal of the borrower to fulfill the loan obligations, which leads to a complete (in the amount of 100%) impairment of the loan.
By maturity, loans are divided into demand loans (on-call) and term loans
A demand loan is such a loan, the repayment of which the bank can demand at any time. If a loan is provided on a “demand” basis, the principal must be repaid by the borrowing client within 30 calendar days from the day the lending bank makes an official request to this effect (no later than the next business day after the day of the condition / event occurrence), unless otherwise the term is not provided for in the loan agreement.
Term loans are divided into short-term (from 1 day to 1 year), medium-term (from 1 year to 3-5 years) and long-term - for longer periods. The terms of medium and long-term loans are different in different countries
Bank loans can be repaid in two ways. In the first method, the entire principal debt on the loan (excluding interest) must be repaid on one end date by a lump sum. The second method of repayment - in installments - the loan amount is written off in parts during the term of the loan agreement Payments to repay the principal amount of the debt are made, as a rule, in equal installments periodically (monthly, quarterly, semi-annually or annually) The second method of repayment is usually applied to the average and long term loans. The interest on the loan can also be paid in a lump sum at the end of the loan term or in equal installments over the life of the loan.
According to the order of issuance, loans in non-cash or cash form, one-time (one-time), in the form of opening a credit line (credit limit), overdraft, bill of exchange (bill of exchange credit) loans, syndicated (consortium) loans
A non-cash form of granting a loan means crediting the loan amount to the bank account of the borrower or his supplier (if the loan is provided to pay the claims against the borrower). If a loan is issued to return previously issued loans, it can be credited to the loan account, the debt on which must be repaid at the expense of the loan.
According to the Regulation of the Bank of Russia of August 31, 1998 No. 54-P (hereinafter - the Regulation of the Bank of Russia No. 54-P), when providing loans in a non-cash manner, banks must credit funds only to the bank account of the client-borrower, including when providing funds for payment of payment documents and for payment of wages. If a loan is issued to an individual, funds can also be credited to the account for recording the amounts of deposits (deposits) of individuals attracted by the bank.
A cash loan is issued to a borrower (usually an individual) in cash.
In accordance with Bank of Russia Regulation No. 54-P, legal entities must be granted loans (in rubles and in foreign currency) only by bank transfer; to individuals ruble loans can be provided both in non-cash and in cash, and loans in foreign currency only in non-cash form
One-time (one-time) loans are issued, as a rule, to meet the needs of the client from time to time. The loan agreement fixes the amount and maturity of the loan. On the basis of one agreement, the loan is issued once. One-time loans can be both short-term and medium and long-term.
The opening of a credit line means the conclusion of an agreement / agreement, on the basis of which the borrower acquires the right to receive and use funds for a specified period, subject to one of the following conditions:
a) the total amount of funds provided to the borrower does not exceed the maximum amount determined by the agreement / agreement - the issuance limit;
b) during the validity period of the agreement / agreement, the amount of the one-time debt of the borrower does not exceed the debt limit established by the agreement / agreement.
At the same time, banks have the right to limit the amount of funds provided to the borrower within the framework of the credit line opened to him, by simultaneously including both of the above conditions in the agreement / agreement, as well as using other additional conditions.
The conditions and procedure for opening a credit line are determined by the parties either in a special general (framework) agreement / agreement, or directly in the loan agreement.
The peculiarity of the credit line is, firstly, that on the basis of one agreement, a loan can be issued several times, and, secondly, that the borrower has the right not to use the credit line (issue limit) in whole or in part. Under the contract, he acquires the right, but does not undertake the obligation to use the loan.
By providing a syndicated (consortium) loan, banks pool their funds, forming a syndicate. In accordance with the agreement concluded, each bank undertakes to provide funds in certain amounts for the general loan. The collective organization of loans allows you to distribute the risk of non-repayment of loans between banks, reducing the risk of each bank, as well as increase the volume of credit.
Syndicated loans in the Bank of Russia Instruction No. 110-I of January 16, 2004 (Appendix 4) are loans, for each of which two or more banks have accepted the risk in accordance with the agreement (agreements) concluded between them. There are three types of syndicated loans.
1. A jointly initiated syndicated loan is a collection of individual loans (loans, deposits) provided by lenders (participants in a syndicated loan or syndicate) to one borrower, if the terms of each loan agreement concluded between the borrower and the lenders indicate that:
· The term of repayment of the borrower's obligations to creditors and the value of the interest rate are identical for all agreements;
· Each lender is obliged to provide funds to the borrower in the amount and on the terms stipulated by a separate bilateral agreement;
Each lender has an individual right to claim against the borrower (principal amount of debt and interest on the loan) in accordance with the terms of a bilateral bilateral agreement, and, accordingly, the borrower's claims for repayment of the received monetary amounts (principal debt and interest) are of an individual nature and belong to each specific lender in the amount
· All settlements for the provision and repayment of a loan are made through a credit organization, which can simultaneously be a creditor (a member of a syndicate) performing agency functions (an agent bank);
· The agency bank acts with the person of creditors on the basis of a multilateral agreement concluded by the lenders, which contains the general conditions for the provision of a syndicated loan to the borrower (the total amount of the loan and the participation of each bank, the interest rate for the loan repayment period), and also determines the relationship between the lenders and the agent bank.
2. An individually initiated loan is a loan provided by a bank (the original lender) on its own behalf and at its own expense to the borrower, the rights of claim (part of them) on which are subsequently assigned by the original lender to a third party (persons - banks that are part of the syndicate) when the following conditions:
The share of each bank participating in the syndicate in the total volume of claims acquired by them against the borrower (principal amount of debt and interest on the loan) is determined by agreements between the banks participating in the syndicate and the original creditor and is recorded in each separate agreement on the assignment of claims concluded between the original creditor and the bank participating in the syndicate;
The procedure for the banks participating in the syndicate in the event of insolvency (bankruptcy) of the borrower, including foreclosure on the pledge, other security for the loan, if any, is determined by a multilateral agreement.
3. A syndicated loan without defining share terms is a loan issued by a bank by the organizer of syndicated lending (the bank organizing the syndicate) to the borrower in its own name in accordance with the terms of the loan agreement concluded with the borrower, subject to the conclusion of the bank - organizer of the syndicate loan agreement with a third party ( third parties) in which (which) it is determined that the specified third party (specified third parties):
c undertakes (undertakes) to provide the bank - the organizer of the syndicate with funds no later than the end of the operating day, during which the bank - the organizer of the syndicate is obliged to provide the borrower with funds in accordance with the terms of the loan agreement in an amount equal to or less than the amount provided by the bank on that day - the organizer of the syndicate to the borrower;
Has the right to demand payments on principal, interest, as well as other "payments in the amount in which the borrower fulfills obligations to the organizing bank and to repay the principal, interest and other payments to the loan provided by the bank not earlier than the moment of actual implementation of the corresponding payments.
Loans do not refer to syndicated loans without defining share conditions, if the agreement between the bank and a third party provides for a condition on the provision of collateral by the bank for funds received from a third party; the bank makes payments on principal, interest and other payments to a third party until the borrower actually fulfills the relevant obligations.
When a loan is issued in the form of a bill of exchange (the so-called bill of exchange, or bill of exchange, credit), this means that the borrower, in accordance with the loan agreement, uses the loan received to purchase the bill of exchange of the creditor bank. The bank, having provided a loan on the basis of a loan agreement, writes a promissory note and issues it to the borrower in exchange for the corresponding amount of money. In this case, a bill of exchange formalizes the receipt by the bank of a cash loan, the source of which is a loan provided to a client on the basis of a loan agreement.
From time to time, any company needs a bank loan. How do banks determine whether to provide a company with a loan or not? How to make the bank consider you a reliable borrower? How to get a loan in the most effective way?
MANDATORY CRITERIA
The first thing to consider when obtaining a loan from a bank is the obligatory economic standards of its activity. Usually, you can determine in advance how much the servicing bank will lend you, without violating the established procedure. The standard limiting the amount of loans granted is called “The maximum exposure to one borrower or a group of related borrowers”. In standard cases, it is 25% of the capital of the servicing bank. If the borrower is a shareholder of the bank, then the maximum is limited to 20%. The amount of the bank's capital at the reporting (quarterly) date refers to open information that can be found either in print media or on the Internet. The maximum risk exposure includes not only debt on loans, but also unused overdraft, 50% of the unused credit line, the amount of guarantees received from the bank, promissory notes of the borrower and related legal entities recorded by the bank. Therefore, before asking the bank for a large loan, check whether your founders, subsidiaries or economically dependent enterprises (for example, those for which your company is the only supplier or buyer) took loans from this bank. Of course, if you give out a lot of guarantees for significant amounts, and then apply for a loan yourself from the bank to which you were vouched, you will be treated very coolly.
A few words about the quality of the loan. To protect the interests of its depositors and shareholders from non-return of placed funds, any bank creates reserves (partly from net profit, partly from expenses before tax). He uses them only to write off bad loans. The amount of such deductions depends on the quality of the loan.
To determine the amount of deductions, the bank classifies all loan and equivalent indebtedness (loans issued, deposits placed with banks, purchased promissory notes, recourse claims on executed guarantees, indebtedness on factoring transactions) according to the established criteria and their characteristics into four risk groups:
- standard loans. The reserve is formed in the amount of 1% of the amount of the debt on the loan;
- non-standard - 20%;
- doubtful - 50%;
- hopeless - 100%.
The main criteria are as follows:
- the quality of the loan security;
- the number of days of delay on the loan and interest;
- the number of renewals of the loan agreement (i.e. any changes made to the agreement by agreement of the parties);
- the quality of these renewals (how much the changes made have improved the terms of the agreement for the borrower).
Great importance is also given to the financial condition of the borrower. So, the bank is obliged to immediately create a 100% reserve for unsecured loans provided to the borrower, which at the same time meets the following parameters: has been conducting business for less than a year, has no credit history, the loan amount exceeds 50% of its assets.
HOW IS YOUR COLLECTION VALUED?
In accordance with the requirements of the Bank of Russia, loans are divided into secured, undersecured and unsecured.
A secured loan is one for which collateral is provided in the form of a pledge that meets the requirements listed below, or guarantees of the Government of the Russian Federation, constituent entities of the Russian Federation, developed countries (the list of developed countries is determined by the Bank of Russia) and guarantees of the central banks of these countries.
An undersecured loan is one for which the collateral does not meet at least one of the specific requirements.
The unsecured loan is unsecured or does not qualify for collateral. Please note: from the point of view of the Bank of Russia, the surety of a legal entity is not a security.
The quality of the client's collateral is closely related to the concept of loan security. There are certain requirements for collateral.
The first requirement for the collateral is that its market value must be sufficient to compensate the bank for the principal debt on the loan (loan amount), all interest in accordance with the agreement (for 1 year), as well as possible costs associated with the sale of the collateral (penalties, fines, legal and other costs in case of foreclosure on security). At first glance, the requirement is simple. But just then there are reasons for the "creativity" of employees of the credit department of the bank.
First, what is real (market) value? Each bank individually decides how it will define it. There are several standard ways in which the value of the collateral is established on the basis of:
- purchase (book) cost with a decreasing factor, for equipment - less depreciation over the crediting period. Reducing coefficients for some types of property reach 0.5;
- market value based on the results of an expert assessment. Reducing factors are often used here as well. Many banks require that the valuation be done by companies that the bank trusts. In some banks, the expertise is carried out by employees of the bank or a subsidiary of an appraiser;
- the amount specified in the insurance contract for the property pledged.
Second, how do you determine the cost? As a rule, they constitute from 10 to 20% of the loan amount, depending on the type of collateral. So, when planning to get a loan, calculate the amount of collateral that would more than cover all of the above costs. Don't forget the maximum projected interest rate. This will be the worst option for the client to assess his collateral. To minimize risks, commercial banks, as a rule, also require that the pledged property be insured with a company that the bank trusts.
The second requirement for a collateral is the preparation of legal documentation in such a way that the time required for the sale of the collateral in the event of a loan default does not exceed 150 days. It is clear that property or rights transferred as collateral must be liquid in terms of not only market demand, but also applicable laws. So, for example, there is no need to offer the bank an apartment with registered tenants as collateral. And you don't need to convince the bank that your store's inventory will fully cover the loan if it hasn't been paid for yet. Of course, all documents must be executed legally competently. The bank may ask to provide statutory and other documents of your partners who agreed to give their property as security for your loan. The borrower is obliged to provide documents confirming:
- powers of persons signing the security agreement;
- his ownership of the property pledged;
- no encumbrance on property (it is not under arrest, not pledged to another bank);
- the legality of the disposal of the premises where the pledge is located (if goods, finished products, raw materials are transferred as pledge).
These are just the basic requirements for collateral established by the Bank of Russia. A commercial bank may consider the guarantee of a solvent company as collateral, and even if it grants it the right to write off debt without authorization from its accounts in the event that the borrower fails to comply with the terms of the loan agreement. If you have such a guarantee, consider that all of the above are the bank's problems, not yours. But if you help him solve them (make your loan secured from the point of view of the Central Bank), provide collateral, then this will help establish partnerships. Many banks require the issuance of a guarantee from the directors or founders of the borrowing company as a condition for granting a loan. Such a requirement is unlikely to cover financial losses in the event of a loan default, but it has a rather effective psychological aspect. Adequacy of collateral requirements is one of the mandatory links in the credit risk management system.
HOW THE CLIENT IS VALUED
Bank of Russia Instruction No. 62a “On the Procedure for Forming and Using a Provision for Possible Loan Loss”. The Bank of Russia also issued Regulation No. 54 “On the Procedure for Providing (Placement) of Monetary Funds by Credit Institutions and Their Return (Repayment)”. It clearly regulates the procedure for conducting credit transactions by banks. Thus, at present, a system for assessing credit risk common for all banks has been formed, i.e. the risk of non-return of funds due to the bank under the contract.
When assessing the risks of short-term transactions and deciding on corporate financing, a huge number of factors are taken into account, up to the assessment of possible political risks. Credit specialists carry out a comprehensive analysis of the borrower's activities, his business, financial flows, and the quality of management. At the stage of approval of the credit approval, the bank attracts experts with extensive experience in international financial organizations.
Since all our contracts are unlimited, within their framework there are tranches of loans, the term of which cannot be higher than that established by the contract, i.e. it is an infinitely long revolving revolving line of credit. The only difference in risk analysis by lending terms is that we structure transactions against specific client operations and thus correlate our risks with the economic essence of what is happening.
As for the registration of assets as collateral for loans, the client must understand that:
- a collateral of at least 130% of the loan is required;
- the client's rights to pledge must be formalized accordingly;
- the collateral must be liquid, i.e. the bank may require the client to provide information on possible ways of selling the collateral;
- pledge is the client's additional costs for appraisal, insurance, security, etc .;
- the client must realistically represent his obligations under the pledge agreement and understand that violation of any of the terms of the agreement is equivalent to failure to fulfill the terms of the loan agreement.
TELL YOUR CREDIT STORY
The Bank of Russia, in its guidance documents, introduced the concept of “good faith credit history” into Russian practice. The requirements are quite reasonable - the borrower simply must not allow delays in repaying the loan, and not delay the payment of interest for more than 5 calendar days. If the loan has been prolonged, the reasons for the prolongation are taken into account. For a serious borrower, as a rule, they are always very respectful and cannot spoil his credit history. To demonstrate to one bank your credit history at another bank, you must bring the relevant documents from there. The requirement for a good credit history is especially important for companies that started their activities less than 1 year before applying to the bank for a loan and want to receive it in the amount of more than 50% of the asset. But for all other borrowers, the quality of credit history is undoubtedly taken into account. There are banks that develop their own internal systems for assessing the quality of credit history.
All of the above refers to the credit history taken into account when considering a loan application. Now about what criteria are applied to the borrower's credit history directly during the period of the loan agreement (quality of debt service).
To determine the risk group, the bank takes into account the number and quality of contract renewals.
Re-registration is any change in the terms of the loan agreement. How many additional agreements you have to the loan agreement, so many renewals. However, they differ in quality in terms of loan classification. The Bank of Russia introduced the concept of “reissuance with a change in conditions”. A change in conditions means:
- decrease in the interest rate, if the refinancing rate has not been reduced;
- prolongation of a loan for a period exceeding the initial one (for example, a 4-month prolongation of a loan provided for 3 months);
- increase in the loan amount.
Violations of the maturity of the loan and interest. For such violations, a gradation has been introduced:
- no delays at all;
- delay up to 5 days inclusive;
- from 6 to 30 days inclusive;
- from 31 to 80 days;
- over 180 days.
Credit history is the most important non-financial factor in evaluating a loan application. The plans for the development of the banking system already include the creation of credit bureaus - special data banks containing information about the reliability of borrowers. Such bureaus exist in all developed countries. After all, a good reputation is valued most of all.
Any bank seeks to minimize the costs of reserves, i.e. prefers that all loans provided be in the first risk group. What can be done so that the bank issued to you is classified as a standard loan?
The classification is made depending on the quality of the collateral. If the loan is secured, then the borrower can:
- delay payment of interest for 5 days;
- allow a loan delay of up to 5 days;
- conclude an additional agreement on renewal “without changing the conditions”.
But if the loan is insufficiently secured or not secured at all, then it is better for the borrower not to do anything of the above.
All loans when issued to legal entities, as a rule, are referred to as standard. Of course, if in all respects the loan of any borrower belongs to the category of “hopeless”, the bank is unlikely to give him funds at all. Consequently, if the borrower is not in a very stable financial position, then there are more chances that he will be provided with a loan with interest paid not in the final settlement, but on a quarterly basis. If your company is new, has not worked for a year, did not take loans from the bank, you do not need to immediately ask for an amount exceeding 50% of the balance sheet asset as of the last reporting date.
If the client is important to the bank, then he can provide him with a concessional loan - with more favorable lending conditions than specified in the bank's documents that define its credit and accounting policy and approaches to its implementation. When granting a concessional loan, the bank is obliged to form a reserve in the amount of 20% of it.
COMPREHENSIVE ASSESSMENT OF CREDIT RISKS
To reduce credit risks, banks conduct a comprehensive examination of the credit project and borrowers. The factors that are assessed in this case are divided into three groups: legal, financial and non-financial.
What is meant by legal criteria is clear. If a company was created in violation of the law, even a bank account will not be opened for it. Lawyers also check the powers of the persons who will sign agreements with the bank, security documents. When receiving a large loan, the borrower must provide all the necessary decisions of the authorities on the conclusion of a large transaction (over 25% of assets at the last reporting date). If the loan is intended to finance a specific project, for settlements under specific agreements or contracts, then a legal examination of these documents is required.
Financial criteria is an assessment of a business plan, creditworthiness according to balance sheet data, and other reporting information. Each bank uses its own methodology, its own ratings. But the main indicators are almost the same everywhere. The company's losses do not always become a reason for refusing to lend: many banks are guided primarily by real turnovers. If a company is part of a holding structure, cash flows throughout the holding are often taken into account. The Bank draws attention to the financial and legal ties of a potential borrower: it studies its main partners (debtors, creditors, lessors, tenants), founders, subsidiaries. This information allows you to assess both financial and non-financial factors.
PROCEDURE
The procedure for granting loans in all banks is approximately the same - representatives of the bank services (credit, legal departments, security services) consider the submitted documents and draw up their conclusions. If they are positive, the issue of granting a loan is submitted for consideration by the Credit Committee. Collegial decision-making is one of the most important ways to eliminate the personal factor in lending operations. It is unlikely that the borrower will be able to "agree" with all the members of the committee. In addition, the discussion at the committee allows you to correctly evaluate the loan project, to take into account all the nuances. Now it is practically impossible to get a loan from a bank on a “contractual” basis (this option was widespread in the early 90s). Even if the head of the company has personally agreed on the issuance of a loan with the chairman of the bank's board, such a borrower is not exempt from providing a full package of documents. The Bank of Russia strictly controls these issues. It is necessary to remember one more general requirement for banks - that they have an Internal Control Service. Her responsibilities are to check the compliance of all banking operations with the requirements of the legislation and the Bank of Russia, compliance with internal regulatory documents. In the event of the formation of a bad debt on loans, an official investigation is almost always carried out. A properly organized control system is a guarantee of the absence of risks when placing funds and, of course, a big plus when carrying out inspections by third-party organizations (tax authorities, Bank of Russia specialists, auditors, etc.).
Now about those non-financial factors that are assessed by a credit analyst. The most significant of them, as noted, is credit history. The next factor is the assessment of the company's management: education, work experience in the industry, in this company. Of course, the main indicator for assessing management is the financial condition and reputation of the company itself. The availability of information is also an evaluating factor: how willingly and quickly the company provides the information requested by the bank, whether the bank's employees are allowed into its territory to carry out inspections. Banks very rarely ask for information that takes a long time to prepare. Provided, of course, that the company has a streamlined accounting of all operations. In general, the “transparency” of a partner is one of the most important requirements for lending, as well as for concluding any risky transaction.
The information that the bank's security service checks and analyzes is, of course, also classified as non-financial. However, this service, as a rule, does not disclose the results of its analysis. With its negative conclusion, the bank simply does not provide a loan, without explaining the reasons.
In the area of non-financial factors, there are requirements of the Law of the Russian Federation No. 115-FZ “On Counteracting the Legalization (Laundering) of Criminally Obtained Incomes”. The law explicitly provides for only one case for recognizing a credit transaction as controlled - when it is carried out with a person or organization registered in a state or territory in relation to which there is information about the illegal production of narcotic drugs. The Bank of Russia has expanded this area. He recommends considering the provision of a loan as dubious transactions:
- secured by funds deposited with the bank;
- on the security of precious stones imported into the territory of the Russian Federation;
- secured by a guarantee of a non-resident bank for an amount equal to an integer (100 thousand, 1 million, etc.);
- in the absence of an obvious connection between the place of business of the client and his counterparties and the location of the guarantor;
- with an interest rate significantly higher than the average interest rate on loans in the domestic and foreign markets.
In addition, the fact that the company launders proceeds may be evidenced by the fact that the information contained in the client's application for a loan does not match the information with the documents obtained during negotiations from the borrower's representatives. On the basis of such recommendations, the Central Bank of the banks should themselves determine for themselves a list of dubious transactions.