This presentation is about commercial lending, how to get loans, criteria, types, briefly discussion on commercial lending by banks.

1. COMMERCIAL LENDING
BY BANKS
PRESENTATION

2. Group E
MSCI-19111115 ARSLAN AKRAM
MSCI-19111114 MARYAM JABBAR
MSCI-19111122 RAFIA ESSA

3. WHAT IS COMMERCIAL LENDING?
• Commercial lending refers to the process by which banks and financial institutions extend credit to businesses
to finance their operations or investments. It is a type of lending that is specifically designed to meet the needs
of businesses, and is usually distinguished from personal or consumer lending.
• • Comparison with other types of lending: Commercial lending is different from other types of
lending, such as consumer lending or residential lending, in that it is focused on providing credit to businesses
rather than individuals.The terms and requirements for commercial lending may also differ from other types
of lending due to the larger amounts involved and the more complex nature of business finances.
• • Importance of commercial lending for businesses:Commercial lending plays a crucial role in
the growth and success of businesses by providing them with the necessary funds to expand their operations,
invest in new equipment or technology, hire employees, and finance their day-to-day operations.Without
access to credit, many businesses would struggle to survive or grow.

4. EXAMPLES OF BUSINESSESTHAT MAY REQUIRE
COMMERCIAL LOANS IN PAKISTAN
Some specific examples of businesses that may require commercial loans in Pakistan include:
• Small and medium-sized enterprises (SMEs): Need funds to invest in new equipment, expand
their operations, or hire more staff.
• Exporters: Need financing to cover the costs of exporting goods to other countries or to finance the
production of goods for export.
• Real estate developers: Need financing to purchase land, construct buildings, or renovate existing
properties.
• Agricultural businesses: Need funds to purchase equipment, fertilizer, seeds, or livestock, or to finance
crop or livestock production.
• Importers: Need financing to cover the costs of importing goods from other countries or to finance the
purchase of goods for resale.

5. TYPES OF COMMERCIAL LOANS
• Term loans: Best for financing long-term investments in assets such as equipment or property.
• Lines of credit: Best for short-term working capital needs or ongoing expenses that fluctuate over
time.
• SBA loans: Best for small businesses that may not qualify for traditional loans and need lower
interest rates and longer repayment terms.
• Equipment financing: Best for financing the purchase or lease of equipment.
• Real estate loans: Best for financing the purchase or refinancing of real estate.

6. • Trade financing: Best for businesses involved in international trade that need help
managing cash flow and reducing risks.
• International trade financing: Similar to trade financing, but may offer more
specialized services for financing international trade.
• Asset-based lending: Best for businesses that have a lot of outstanding invoices or
need short-term working capital.
• Mezzanine financing: Best for businesses that need funds for growth or acquisitions
but may not qualify for traditional equity financing.

7. CREDIT ANALYSIS AND UNDERWRITING
Credit analysis and underwriting is a process that lenders use to evaluate the creditworthiness of a
borrower and assess the risk of lending money to them.This process involves a thorough examination
of the borrower's financial situation, business operations, and credit history.
During the credit analysis and underwriting process, lenders consider a variety of factors to determine
whether to approve a loan request, including:
 Factors considered in assessing
creditworthiness
 Credit score and credit history
 Financial statements and ratios
 Cash flow analysis
 Business plan and projections
 Loan-to-value ratio
 Debt service coverage ratio
 Personal guarantees
 Role of loan officers and underwriters
 operations, and credit history.

8. LOAN DISBURSEMENT AND SERVICING
• Loan disbursement refers to the process of distributing funds to the borrower after
a loan has been approved.This can be done in one lump sum or in multiple
installments, depending on the loan agreement.
• Loan servicing refers to the ongoing management of a loan after it has been
disbursed.This includes tasks such as collecting loan payments, calculating
interest, and providing customer service to borrowers.
• Some lenders may handle both loan disbursement and servicing in-house, while
others may outsource loan servicing to a third-party provider. It's important for
borrowers to understand the terms of their loan agreement and the process for
making payments and communicating with their lender or loan servicer.

9. LOAN PRICING AND STRUCTURING
• Loan pricing and structuring refers to the process of determining the interest rate
and terms of a loan based on the borrower's creditworthiness and the lender's risk
appetite.
• Loan pricing involves setting the interest rate and any fees associated with the
loan based on factors such as the borrower's credit score, the term of the loan, and
market conditions.
• Loan structuring involves setting the terms of the loan, including the repayment
schedule, the amount of the loan, and any collateral or guarantees required.
• Overall, loan pricing and structuring are important components of the lending
process, as they determine the terms of the loan and the borrower's ability to
repay it.

10. LOAN PRICING AND STRUCTURING
 Factors affecting loan pricing
 Fixed vs. variable interest rates
 Fees and charges
 Amortization schedules
 Balloon payments
 Prepayment penalties
 Covenants and restrictions
 How banks structure loans to manage risk

11. THE COMMERCIAL LENDING PROCESS
The commercial lending process involves several steps, including:
• Pre-qualification:The borrower submits an application with basic information about their business and
financial situation to determine if they meet the lender's initial requirements.
• Application: If pre-qualified, the borrower submits a more detailed loan application that includes
information about the purpose of the loan, the amount needed, and the borrower's financial history.
• Underwriting:The lender reviews the loan application and conducts a thorough analysis of the borrower's
financial history, credit score, cash flow, collateral, and other factors to determine the borrower's ability to
repay the loan.

12. • Approval: If the borrower meets the lender's underwriting criteria, the loan is approved, and the borrower
receives a loan offer that includes the loan terms and interest rate.
• Closing:The borrower and lender sign a loan agreement that outlines the terms of the loan, and the loan is
disbursed.
• Servicing:The lender or a third-party provider manages the ongoing loan servicing tasks, such as collecting
payments, calculating interest, and providing customer service.
Throughout the commercial lending process, communication between the borrower and lender is essential to
ensure that both parties understand the terms of the loan and any potential risks or issues that may arise.

13. ALTERNATIVESTO COMMERCIAL LENDING
• Alternatives to commercial lending refer to other sources of funding that businesses can use to finance their
operations, investments, and expansion plans.These alternatives may include:
• Equity financing: Businesses can raise funds by selling shares of their ownership to investors.
• Crowd funding:This involves raising funds from a large group of people, often through online platforms.
• Venture capital:Venture capitalists invest in businesses with high growth potential, in exchange for
equity ownership.

14. • Angel investors:These are typically high net worth individuals who provide funding to businesses in
exchange for equity ownership.
• Grants and subsidies: Businesses may be eligible for grants and subsidies from government agencies,
foundations, and other organizations.
• Personal savings and loans: Business owners may use their own personal savings or take out
personal loans to finance their business operations.
Overall, businesses have many alternatives to commercial lending, and choosing the right source of funding
depends on the business's financial situation, growth plans, and risk appetite.

15. COMMON CHALLENGES IN COMMERCIAL LENDING
Commercial lending can present several challenges for lenders and borrowers, including:
• Credit Risk: Commercial lenders must evaluate the creditworthiness of borrowers to determine the likelihood of
repayment, which can be challenging if borrowers have limited credit histories or financial records.
• Collateral: Lenders may require collateral to mitigate their risk, but borrowers may struggle to provide sufficient
collateral or may have assets that are difficult to value.
• Interest Rates: Interest rates can fluctuate and affect the profitability of commercial loans. Borrowers may also
struggle to manage their debt service payments if interest rates increase.

16. • Regulatory Compliance: Lenders must comply with federal and state regulations governing lending
practices, which can add complexity and cost to the lending process.
• Economic Conditions: Economic conditions can impact borrowers' ability to repay loans, and lenders
must be prepared to manage defaults and loan losses during economic downturns.
• Overall, commercial lending can be a complex and challenging process, but lenders and borrowers can work
together to manage risk and achieve their financial goals.

17. SOLUTIONS FOR OVERCOMING COMMERCIAL LENDING
CHALLENGES
• There are several solutions that can help overcome commercial lending challenges, including:
• Technology: Lenders can use technology to streamline the lending process, reduce costs, and improve
efficiency. Digital platforms can help with loan origination, underwriting, and servicing, making it easier for
lenders to evaluate creditworthiness and manage loan portfolios.
• Data Analysis: Lenders can use data analysis and machine learning tools to better evaluate borrowers'
creditworthiness and identify potential risks.This can help lenders make more informed lending decisions and
reduce the risk of default.

18. • Alternative Lending Models: Alternative lending models, such as peer-to-peer lending and crowdfunding,
can provide businesses with access to funding sources beyond traditional banks.These models may be less regulated
than traditional banks, which can lead to faster loan approval and disbursement.
• Risk Mitigation: Lenders can mitigate risk by requiring collateral, setting loan-to-value ratios, and establishing
covenants and restrictions. Borrowers can mitigate risk by maintaining strong financial records and credit histories,
and seeking to build long-term relationships with lenders.
• Collaboration: Lenders and borrowers can work together to overcome commercial lending challenges. Lenders
can offer guidance and support to borrowers in managing their debt and improving their financial health, while
borrowers can provide lenders with timely and accurate financial information and work to build trust and
transparency in their relationship.

19. CONCLUSION
• Commercial lending by banks is an important source of financing for businesses. Banks
assess the creditworthiness of the borrower and the risk associated with the loan before
approving it.There are several types of commercial loans available, and the terms and
conditions of the loan are tailored to the specific needs of the borrower.
• It is important for borrowers to understand the terms and conditions of the loan before
signing a loan agreement. Borrowers should also be aware of any pre-payment penalties
that may be associated with the loan, as well as any other restrictions or conditions that
may be attached to the loan.

20. THANKYOU