Credit evaluation / Credit review

The credit evaluation is the process during which the bank decides on the granting of the requested loan and the terms of the loan to be disbursed.

When a business applies to a bank for a for a loan, the bank asks for a number of documents and information. The bank considers these and makes a decision on the basis of its own decision-making criteria as to whether the company can receive the requested credit or not. This decision process is the credit evaluation. The procedure is not public, so we cannot know on what criteria and algorithms the bank evaluates our application. 

Of course, you can know a few things about what goes on behind the scenes. The bank is basically wondering whether the company's result are sufficient to repay the requested loan, and whether it will remain so during the entire term. 

For this, the bank looks at the revenues and expenses of previous years, their regularity, the financial indicators of the company, for example the level of indebtedness. The bank is also interested in how well the business is standing. Will some nascent market trend or the dropout of some customers ruin the planned course of business? Overall, the creditworthiness is being checked. 

When our account managing bank is the credit provider, the procedure is simpler. The account managing bank has insight into our account movements, and our financial situation is transparent to them. But even this bank uses complicated algorithms to compare our company's data with the historical data of other comparable companies. In doing so, they look for the frequency with which companies with similar indicators and activities to ours became insolvent in the past. 

In addition, the banks will of course also check the owners. In doing so, they research whether they have had a business in the past that became insolvent, or whether there were persons with the authorised signatory at the company with whom this happened. 

They also examine the collateral offered. They check whether the collateral is suitable so that in the event of non-payment, the amount received from their sale is sufficient to pay the loan and its interests. 

The result of the credit evaluation is the bank 's decision as to whether or not we will receive the requested loan. Rejection or granting of credit are not all possible outcomes, however. A number of intermediate decisions can also be made as a result of the credit evaluation. The bank can ask for additional collateral and a guarantor. In addition to these, you can say that although he does not give as much loan as we asked for, we can get less loan. The bank can offer our company a different type of loan, possibly one with different terms and conditions from the loan we requested.

At the same time, banks generally do not lend to certain activities, high-risk industries, and startups. For these companies, angel investors, venture capital corporations or crowdfunding can be suitable financing solutions.