PROCESSING THE LOAN PROPOSAL FROM REQUEST TO DRAWDOWN

Abstract

When natural resource companies request loan funds, many steps are involved in processing the proposal. Although circumstances differ with the size and type of venture, there are basic stages, some of which commonly cause unexpected delays.

The bank typically expresses interest in assisting the company on a non-commitment basis. An appraisal of reserves, capital expenditure, operating assumptions, marketing, management and other factors can then proceed along with the company's project planning. When the total sum required is crystallised and a firm request for a loan is made, the following are some of the procedures required before the first drawdown can be effected.

The equity/loan ratio, the mix of funds (term loan, refinance loan, leasing, bills, overdraft, etc.) and the currencies appropriate to the project are discussed. The bank must be satisfied that approvals by government and other authorities have been obtained or are probable to allow the project to proceed. An essential part of this appraisal is an examination of all financial forecasts and, if necessary, the preparation of additional sensitivity analyses. A submission is then prepared for presentation to the bank for approval. This may be granted subject to certain conditions including completion of an appropriate loan agreement incorporating the terms broadly agreed.

The Company is advised, then bank lawyers normally draw up the loan agreement documentation and company's lawyers review and discuss. The agreement is signed and stamped and the first drawdown can then be made.