I AM A EUROPEAN 
AND 
I NEED A LOAN IN FLORIDA

By: Arnold J. Haake, Royal Palm Bank
Reprinted with permission from Florida World Magazine 3/2001
     

Any prospective borrower desiring an extension of credit from any professional lending institution should understand the three principles under which that loan request will be evaluated. These are the same principles that are used by bankers and other lending professionals in Naples, Florida as well as Naples, Italy. 

The first principle involves the evaluation of any collateral used to secure the loan. It is obviously very important that the lender be very comfortable not only with the appraised value of that collateral at the time when the lender or borrower might be forced to convert the collateral to cash but also that the lender has direct and legally unfettered rights to that collateral. Sometimes the non-US residency of the borrower creates a question about those lender’s rights to that collateral. A resourceful and experienced US lender can overcome these questions.

As no lender wants to foreclose on any collateral and few consider themselves just pawnbrokers, lenders must also look at the ability of borrower to generate sufficient cash to service the loan for interest and principal as it routinely becomes due. This is the second principle. Normally the US based lender uses the most recent US tax returns to verify this cash generation ability. Non-US residents, often with stale-dated tax returns in formats, currencies and languages unfamiliar to that US based lender, often have great difficulty in verifying their income to the satisfaction of the lender. However these difficulties can also be overcome especially by a banker who wants to attract the relationship to his or her financial institution.

The third principle involves an evaluation of the prospective borrower’s credit history. The lender must be satisfied that a borrower has a history of responsible use of credit. The banker in your home country who has had your deposit and any credit accounts over the years normally has no problem in making this critical evaluation. However the US banker, in whose office you have just entered, doesn’t have this knowledge and must look to other sources of information to aid him. 

If you have resided in the US for a few years you will surely have a “credit report.” 
A credit report is a factual record of your credit payment history. It's provided to companies and individuals by credit bureaus for purposes permitted by law, usually to grant you credit or employ you. A credit report is a report generated from your credit file which is a database maintained by a credit bureau containing your US credit history.

More than 190 million people in the United States have a credit card, car loan, mortgage or student loan. Almost every one of them has a credit file. The information in their credit file is obtained directly from the companies they have credit with, as well as from government agencies and the courts. When anyone in the US applies for any type of credit or financing, a credit report is generally obtained which contains information from at least one of the three major credit bureaus (Experian - formerly TRW, Equifax and Trans Union), the so called "Big Three."

If you are a new arrival to the US, you are not likely to have such a US credit report from the Big Three. A resourceful US banker must then work with the bankers in your home country, those who know you best, to obtain the necessary information for him to make this evaluation. 

In the US, someone who has no credit report or who has never had to use credit falls unfortunately in a high-risk category. In order to obtain credit in the US, a prospective borrower must show that he or she has responsibly used credit in the past. It thus behooves the new European arrival to work with a local and understanding US banker to establish that extremely important US credit history as soon as possible.