Commercial Loan Process – Application And Documentation 

The commercial loan documentation process in Kenya is established by, and tailored to suit the needs of all borrowers, their requirements, and target markets.

The commercial loan processes are developed by diverse parties such as banks, financial institutions, and private funding agencies, who have come together to create a lending platform that best meets the needs of borrowers within the country. These kind are usually secured loans.

Understanding a Commercial Loan Process 

Commercial loan in Kenya can be availed from financial institutions like banks and microfinance institutions (MFIs). Banks on their part lend small businesses education facilities loans like student loans, micro credit services and any commercial money that is less than Ksh 10 million.

Going further with the process, even where a financial institution or bank is operating in compliance with the law, there are still times when an application for a loan will be turned down.

While this can be disappointing, it is important to note that many of these institutions adhere to strict criteria when it comes to reviewing loan applications. This is for the protection of both the bank and the client, as well as to ensure that funds are used responsibly and loans repaid.

 In the loan application process, the business must specify what the commercial loan will be used for. Then go further to supply other necessary information and adhere to all instructions. 

What is Commercial Loan Process

Typically, commercial loan process is the agreement and other legal closure between a bank and a business to fund both operating costs and capital expenditures of the business. They usually require collateral and financial statements to prove the company’s ability to pay.

What is a Commercial Loan?

The term “commercial loan” refers to any loan provided by a financial institution such as a bank to businesses. A commercial loan is a type of loan made to a company or an entrepreneur for funding their business or commercial projects. These loans help widen the reach of business enterprises by providing them with capital to fund their activities. 

Moreso, commercial loans help entrepreneurs grow and expand their businesses, by providing them with the required funds that they may lack through current assets. It is typically used to purchase long-term assets or to fund day-to-day expenses in a business.

Process for Securing a Commercial Loan

Commercial lending process steps is as follows:

1. Qualifying stage and presentation of pre-approval documents 
2. Loan application stage
3. Review of loan application document stage
4. Loan underwriter approval stage
5. Presentation of the term sheet by the underwriter to the company stating everything about the loan for reconfirmation 
6. Completing the loan packages, presenting the closing documents and signing.

What are the four loan documentation requirements banks need when granting a commercial loan request?

There is a lot of documentation required by banks when giving commercial loans. We are quite used to these requirements and they are usually provided while taking a business loan or home loan. When disbursing a commercial loan, one is required to produce certain documentation like:

1. Documents for existing businesses
2. Income statements and business balance sheets for the past three years.
3. Projected balance sheets and income statements for two years.
4. Cash flow forecast or Projected cash flow statements for at least the next 12 months.
5. Personal and business tax returns for the last three years.

What other financials are needed for a commercial loan?

Before you can even think of getting a business loan, you have to know what financial documentation your bank requires. We have put together a comprehensive list of the most common financial banks require processing an application of commercial loan:

1. Business Credit Score
2. Basic Personal Information 
3. Basic Business Information and Permits
4. Two Years of Tax Returns, Both Personal and Business
5. Recent Business Bank Statements

How long does it take to process a commercial loan?

Two to six weeks is an acceptable time for many commercial banks and microfinance banks. There are still banks that process it faster. 

3 Factors influencing the time to process a commercial loan

There are various factors that will influence the time to process a commercial loan. If a business has:

1. Good financial standing
2. Bankable and investable projects and
3. Capacity to service the loan

Here, the process is supposed to be faster.

3 Limits to the processing time of commercial loans in Kenya 

Getting a commercial loan in Kenya is not an easy feat. Among the factors that affect the processing time for a commercial loan in Kenya are:

1. The length of the borrower’s credit history
2. The financial institution where the borrower chooses to apply for a loan and 
3. Constant reminder by the borrower.

How much is a down payment on a commercial loan?

Most commercial lenders require a down payment of 30% before they consider or approve a loan.

Conclusion

Commercial loans are designed to promote business development in the country. However, with so many similar programs available and the ever-increasing demand for these loans by various organizations, banks and financial institutions have put in place conditions that have made it a little challenging for those looking forward to starting up a business.

Just like any other form of lending, getting a commercial loan requires an extensive application process. Just go through these processes keenly and you will get your money within a short while.