The Steps of Loan Operation

The Steps of Loan Operation

Steps of Loan Operation –

Bank Loan is the extension of money from a bank to another party with the agreement that the money will be repaid. This term is often used for cash flow support or to cover operating expenses from day to day.

Generally, loan operations are executed by the nine steps, which are stated below:

Step –1: Receiving loan application:

  • Inviting and receiving loan application.
  • Checking whether the loan applications are properly filled in with all information required.

Step – 2: Collecting loan information:

  • Interview.
  • Collecting statement of accounts and other information relating to the business.
  • Collecting relevant information from other sources.

Step – 3: Loan analysis:

  • Analyzing the collected information.
  • Making reports on the basis of loan analysis.

Step – 4: Loan final decision:

  • Making decision basing on the loan analysis.
  • Sanctioning or rejecting the loan application.
  • Determining securities and other terms and condition through discussion.

Step – 5: Loan documentation:

  • Preparation of loan agreement.
  • Collecting loan documentation.

Step – 6: Loan agreement:

  • Signing loan agreements by the bank and the loaner.
  • Taking charge of the securities offered.
  • Starting disbursement loan installments.

Step – 7: Accounts of loan transaction:

  • Recording loan transaction through journals and edger.
  • Filling the documentation of the securities.
  • Making a separate file for each of the loan cases.

Step – 8: Review and monitoring of loan agreement execution:

  • Giving notice of installment dues.
  • Acknowledging the receipts of the installment,
  • Making a list of the monthly default cases to be pledged before the board of directors.
  • Reporting on the periodical inspection of the business unit of the loanees.
  • Reporting above the charge of the financial condition of the loanees.
  • Classification of the loan according to the risk involved.

Step – 9: Loan recovery:

  • Conducting loan recovery operations,
  • Identifying the problem loan.
  • Adjusting, if necessary, the terms and condition of the problem loan cases through discussion.
  • Taking legal steps against the willful default.

The nine steps mentioned in above are to be followed sequentially for a systematic and disciplined loan operation. If any step is bypassed by showing mercy or nepotism to the borrower or by facing political pressure, complexity will arise which may create a defaulting situation and consequently put bank to a failure.