Loan Documentation Process in Kenya

The loan documentation process includes the following terms: application, examination, assessment, choice documentation, directions, and collection of loans. The documentation process in Kenya for commercial banks, microfinance banks, Saccos, and private financial institutions is all for their best interest. This article will get you through the loan documentation processes, the steps for a commercial loan, and the process for preparing a loan document.

Understanding the loan documentation process in Kenya

When you want to secure a business loan in Kenya, you will be required to fill out a lot of forms as attachments and all this works to determine how the lender will approve your loan application. 

There are several standard terms used by lenders in Kenya, which are often incorporated in facility letters, loan agreements, or offer letters, which are produced by banks in-house. Law firms prepare security documents for them too. For higher-value loans, most banks/lenders contractually instruct an external lawyer to prepare the loan documentation. Typically, the loan agreement would be patterned with legal backup.

The loan documentation process is an important one, as it is how the lender evaluates the borrower and decides whether to provide the loan.

What is the loan documentation process?

The loan documentation process includes ways of identifying the borrower, documenting the collateral and other papers, attaching the proper instruments, and perfecting the Security Interest. With all these checklists noted and filed, the lender and borrower can now go ahead with the loan agreement process.

How do I prepare a loan document?

To prepare loan documents, you first need a good deal of planning and other things which include:

1. Review your personal financial statement.
2. Properly review and state a tangible way to use the Funds 
3. For business, you need to prepare your P&L Statement, Personal Tax Returns, and business debt schedule.

How do you document a loan?

The loan documentation agreement should include the following information:

1. Names and addresses of the lender and the borrower.
2. Amount of the said loan
3. Date of loan disbursement
4. Interest rate
5. Date of repayment 
6. Include also the APR and other information about the consignor, if applicable

4 Stages of the loan documentation process in Kenya 

The loan documentation process in Kenya involves several stages. These are: 

1. Application 
2. Underwriting
3. Disbursement and 
4. Accounting for the loan or repayment 

Interest rate loan documentation process 

In Kenya, there are two main types of interest rates:

1. Fixed rate and 
2. Variable rate.

The Central Bank of Kenya (CBK) rate is used as the reference point for setting the interest rate on loans in local currency. Banks usually apply a margin over LIBOR to loans denominated in foreign currencies (e.g., US dollars).

Conclusion

The loan documentation process in Kenya is not as tough as most people think. As a matter of fact, it is quite simple because most financial institutions offering loans, mortgages and other financial services take the same steps to completing the loan or mortgage. Learn all it takes to document a loan in Kenya.