A funding application for a debt funder in particular, is likely to go through a couple of rounds of funding committee meetings to assess the proposal’s suitability for lending.
A credit committee consists of the upper management of a lending institution with the authority to approve loans that the local contact (often the Business Development specialist) does not have the authority to approve.
The types of loans that a credit committee reviews are generally of a large size and/or are risky.
The job of the credit committee is to ensure that the loan being reviewed meets regulatory standards, the firm’s lending policies, and fits the credit risk appetite of the firm.
Credit committees assess factors such as risk mitigants, the borrower’s credit score, past payment history, outstanding debts, and current liquidity.
The major credit reporting agencies in the UK provide important credit information on borrowers that help credit committees arrive at their decision.
The committee also determines the actions to be taken on delinquent loans.
What information will the credit committee require ?
For any funding proposal, and in particular, that for the purchase of a business, you will need to supply a great deal of information to the credit committee, which could likely include the following:
The above information will effectively be your marketing pack for funders. You should include anything and everything in the pack which will assist the funder’s credit committee to fully assess the proposal.
Speed of the process
The speed of the process from start to finish is very variable. The initial credit committee assessment could be within a couple of weeks of your initial formal submission for lending however, the second and any subsequent credit committee meetings could easily be a matter of months, which is largely down to the speed of the transaction (which is being driven by the buy side and sell side advisers combined) rather than anything to do with the lenders themselves.
Changes to your initial funding offer
In times of economic uncertainty or if market forces such as central government or the Bank of England make any fiscal changes which influence confidence in the financial markets, and thereafter interest rates, then a funder will more than likely wish to revisit any initial or final term sheet they have previously provided and re-assess the risk associated with the transaction from their side. This could result in a change to your term sheet and the deal could be switched from a fixed interest rate to a floating rate, in line with market rates at the time.
Remember, a funder is always interested to know how their loan will be repaid if factors affecting the ability to repay change for the negative in the future