A credit application form as the name implies is a form that is filled and completed by a business or an individual that seeks to apply for a line of credit with a lending institution or. The information supplied by the individual or business is then used to determine the credit history of the borrower, the employment status, and his or her ability to repay the loan. The credit application form can also be used to grant credit to clients allowing them to purchase goods on credit and repay when they have been sold. However, it is important to state that going through this route requires creating a solid credit application process to avoid the risk of bad debts and cash flow problems.
Most businesses do not use the credit application form or are not using them consistently. Whatever the case may be, the issue of the credit application form needs to be addressed. A credit application is necessary for a business in helping to assess and manage business risk and also identify those clients or customers who do not deserve credit. It is important to note that a more comprehensive credit application form will require more information but will give you a better idea and more confidence in your ability to make a good decision. There are so many templates available on the internet that can offer a guide. However, every standard customer credit application form must include but not limited to the following steps.
Step 1 Request the name of the business, address, phone, and fax number. The name should include the trading name if any and also the full contact details.
Step 2 Request the name, address, and social security numbers of principals involved.
Step 3 Request the type of business. It could be a corporation, partnership, or even proprietorship. It is also important to specify the type of industry and the number of employees on the payroll.
Step 4 Request for bank references. The bank references should include the name of the bank, telephone number and the fax number of the bank, the account number, the account type which could be any of savings, checking, or loan account, the date the account was opened, and the full address of the bank.
Step 5 Request for trade payment references. The trade payment references are very important in the credit application form and should include the company’s name, account number, and contact person. Other information required in the trade payment references section will be the terms, the credit limit, telephone, and fax.
Step 6 Request for personal/ business bankruptcy history. In order to determine whether the individual or business is capable of paying back, it. It is important to capture the bankruptcy history. This will go a long way to knowing the capabilities and the risks involved with the borrower.
Step 7 For businesses applying for a line of credit, you can request an “Authorization of credit release”. This will give you the needed authority to request their bank information necessary for the application by doing that directly with the bank involved. The authorization section should contain the bank and business information with a column for the signature of the applicant.
Step 8 Request for a personal guarantee. The guarantor in this case should be the president or owner only. The guarantor information includes the social security number, driver’s license, date of birth, signature, and the date of the application.
1 You can also explore other ways of determining customer credit worthiness by asking for a financial statement through a question on the credit application form or in some cases, by getting a commercial credit report. These pieces of information will help you in calculations needed in the determination of the customer credit worthiness.
2 Run the financial ratio to help determine the financial health of the borrower and these ratios include debt to equity ratio, debt to asset ratio, current ratio, cash ratio, cash asset ratio, operating cash flow ratio, working capital ratio, and the quick ratio. The knowledge of all these ratios will go a long way to where the borrower stands in his or her application.
3 Do not forget to consider the borrower's cash flow, the debt levels, and the industry evaluation. Also, remember that a customer may not be credit worthy today even if he or she has been in the past. Always ensure that all these are taken into consideration in order to make a sound judgment.