The economy of the world is getting worse, and people around the globe are struggling to survive. More and more people are getting poorer despite the evolvement in technology and increase in the global Gross Domestic Product prior COVID-19 pandemic. Many small scale businesses are shutting down due to lack of funds. So it is imperative for individuals and business owners to seek loans from banks and other financial institutions.
As an individual or organization giving out loans, below are some of the things you need to know before loaning someone money.
Know the purpose of loan
It is important to understand why the borrower needs the money. You should know if it’s for personal or business use. If it’s for business development, you should know what the business entails and the potential returns. SPECIFICALLY ask, “What will you use the money for?”. Make sure the purpose makes sense in your experience. But before anything else, make sure the someone has a plan if they fail.
Know the credit score
It is important to know the personal credit score in cases of individual borrowers that you don’t have a personal connection too. In cases of already established businesses, you should understand both the business’s credit score as well. Make sure they have a history of following through on what their commitments.
Know if they have a stable income
Individual or business cash inflow is an essential factor to consider when giving out a loan. A business or individual with a stable income will most likely repay debt. That is why most banks prefer to give loans to people with steady income than self-employed individuals. It is also a benefit if the individual or business has multiple sources of income that are streamlined and seamless, to cause less stress for repayment.
Know if they pay bills on time
This is a very crucial point that many do not consider. However, we advise that you check the borrower’s records and see if they pay bills on time. People who pay bills on time tends to keep to an agreement.
Confirm if the person has a history of repaying debt
Many people in this generation find it challenging to repay debt. Hence, it is necessary to check the borrower’s records and ascertain if they had refunded previous creditors. This will give you a clue about the individuals or business ability to repay. You can easily find this information with records and references.