As lenders use data and loan management software to assess the risk levels associated with certain borrowers, they need to be able to adjust their process to account for the evolving factors associated with the loan.
Bank Systems Technology contributor Chuck Nwokocha calls for lenders to make this process a “dynamic” one as they assess borrowers.
“Some financial institutions evaluate entire loan relationships, others prefer to rate each facility, and still others rate both relationships and facilities,” Nwokocha said.
In his assessment, for commercial loans in particular, the considerations include:
- Credit risk at loan origination point and over time
- Character (appropriate references and credentials)
- Management ability
- Environmental conditions and factors.
Whether your clients are individuals or organizations, or are seeking a customized risk assessment solution, comprehensive loan management software will help lenders determine which borrowers are creditworthy and which display excessive risk. From that point, companies can craft a payment plan for borrowers that is appropriate for both parties.
Why Credit Risk Assessment for Lenders?
A customized risk assessment solution could be developed by lenders that captures, for example, the elements of the “Five Cs of Credit” that lenders often use to evaluate borrowers. These five characteristics include the borrower’s character and reputation (as mentioned above), their capacity to repay the loan and their borrowing history, other collateral that could serve as another repayment option, their total capital and the conditions of the loan (both the overarching lending environment and elements of the loan, such as principal and interest rate).
Once the “Five Cs” are established, lenders can expand the scope of their assessments even further.
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