From small business owners to real estate investors to municipal and public corporations, borrowers are demanding more from their banking relationship. The five criterions below are to be the most vital criteria that borrowers seek from their lender. Credit officers should study the following fields while selecting a borrower for allowing credit facilities:
(a) Person/Man: Person means the man behind the organization. Characters, past record, managerial capacity, educational background, family status, willingness to repay the loan are the ingredients to emphasize. The Owner must be a person of integrity; good character, educated, experienced and status. The reimbursement of the loan also depends upon the willingness to pay. The Willingness to pay off the loan depends upon the honesty and character of the borrower.
(b) Purpose: Purpose of the loan should be productive, legitimate, and fruitful so that the money not only risk-free but also provide a certain source of repayment. If the borrower invests the money in an unproductive or speculative-project the advance would be in threat. The advances should not be in one particular track or to one particular industry, because any adversity faced by the particular industry will have severe effects on the bank.
(c) Capacity: Capacity includes the business ability, managerial and marketing ‘power of the borrower. The capacity depends upon the borrower’s tangible assets and the achievement of his business. The banker should take utmost care hi ensuring that the enterprise or business for which loan is sought is sound.
(d) Capital/credit worthiness: Credit worthiness is the financial strength, net worth to over the business risk. Personal Net Worth is also the backup of monetary strength.
(e) Collateral: Additional comfort or securities provided by borrower is collateral Security. The collateral security must have quick salability or convertibility. It is the insurance or shock absorber to fall back upon in case of demand.