Common Steps to Get a Bank Loan
Although the loan application process may vary slightly from one financial institution to the other (and from one type of loan to another), banks generally share some common steps and required documents (as do different types of loans).
Once you have found the best bank loan interest rate, follow these steps for a speedy loan application approval.
- Present Loan Application to the Bank
This must state the date of application, the loan purpose, type, amount, and conditions requested, and the collateral offered. It must be signed/stamped by the applicant/authorized personnel
- Fill out the Loan Request Application Form (LRAF)
Make sure to fill in all required details and that it is signed by the applicant and bank staff.
- Provide All Necessary Legal and Financial Documents
Ensure that the documents are as free from error as possible to avoid wasting time resubmitting files. Any sign of fraud caught at this step may also automatically result in the rejection of the loan request.
- Pay Pre-Approval Processing Fees
This may include fees to maintain the loan account, as well as credit information fee (this is to reimburse the bank’s expense when it gets your credit history from the National Bank of Ethiopia).
Note: Beware of banks that have zero processing fees as they may call for a higher rate of interest, stamp duties, and other legal charges instead.
- Have a Consultation with the Bank
This step may or may not be skipped depending on the bank’s discretion. It is a face-to-face conversation with the concerned bank authority to get more detail on the applicant and ensure that he/she can pay the principal and interest amount allocated.
- Wait for Approval
The bank will now evaluate all the submitted papers and fees.
- The time it takes for your loan request to be processed depends on many variables such as the business nature and amount of loan taken out, the type of collateral involved, the term of the loan (short, medium, and long), the value proposition that you may provide the bank, and so on.
- Also, keep in mind that there may be millions of other people requesting credit, and your chance of a quick loan takeout heavily depends on your place on that long list. It could take you 3 days, 3 months, or even a year to get approval.
- Receive Offer Letter
The moment the loan request is authorized, the bank will send an offer letter to the applicant disclosing the following:
- The loan amount that has been approved.
- The annual percentage rate/interest rate on the total loan balance.
- Whether the interest rate is variable (usually with inflation) or fixed.
- Information about the loan’s length of repayment date/ maturity date.
- How the debt is to be repaid.
- Credit terms, policies, and conditions.
Once the applicant receives the letter, he/she must check thoroughly to make sure the terms are as agreed upon before signing the acceptance copy.
- Evaluation of Property Papers, Site Estimation, or Business Plan/Stage
This step differs for business and personal loans, but the one thing they may have in common here is the technical check and/or estimation fee the applicants may be asked to pay.
- Sign the Agreement and Get the Loan!
The applicant will now sign the final agreement for the disbursement of the loan. All original copies of properties put up as collateral will be handed over to the bank. The sale of these collateralized assets will not be possible. Fees to be paid after approval may include some or all of the following:
- Stamp Duty: Usually 1% of the loan
- Loan Processing Fee: Usually 0.25% of the loan. This may be paid at the pre-approval stage.
- Revenue Stamp: ETB 5 (5 Birr). Yes, you read that right.
