Thursday, May 31, 2012

How to conduct credit investigation?

Nowadays people are not hesitant to approach the banks and financial institutions for the purpose of availing some kinds of finance. Under such circumstances the banks and financial institutions are in a position to take utmost care in judging any individual for the purpose of getting eligibility for a loan.
The objective of loan interviewing and credit investigation is to determine as to whether  an applicant is eligible  for getting a loan and in such a case, the banks are in a position to gather as much information as possible  for the purpose of financial analysis and find out other subsequent steps to be taken for the purpose of extending commercial lending.
Normally the banker conducts an interview with the intending borrower at the time the borrower submits an application for availing a loan. The following questions can play great role towards selection of the borrower:
01.            How much money is necessary? – The borrower should be in a position to furnish the correct details to the banker. This information is readily available only with the borrowers who sincerely and honestly are willing to avail loans. When the borrower takes some time to tell the amount, the banker can very well understand that the borrower had not made any homework in finding out the exact financial requirement. Probably the borrower may be availing the finance for some other purposes.
02.            How the finance available from the bank can be utilized? – The borrower should be in a position furnish the complete details. For certain kinds of activities the requirement may be more and for other activities the financial requirement may not be much. The borrowers should not be of the opinion that they can avail any amount from the banker and such borrowers are found to be utilizing the amount for purposes other than the one for which they are availing finance from the banker.
03.            How long they do need the finance? – A honest borrower is in a position to furnish the exact duration for which he requires the finance. Such borrowers are willing to remit their dues in time and close the loan accounts within the stipulated time.
04.            How will the money be repaid? – This question prompts the borrower to find out the exact period by which he can repay the amount. In order to answer the question, the borrower should be in a position to furnish the details as to how he is going to generate the income.
In fact the credit manager should take time to pose as much questions as possible so that he is able to get the required information from the intending borrower. In fact, for banker who is lending money to the borrower, the initial interview process is considered to be the crucial one and the credit manager should satisfy himself as to whether he can consider the loan for the borrower. Once the credit is extended, the banker may find it very difficult to recover the amount, in case the borrower is found to creditworthy at a later stage.

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