Factors To Be Considered Before A Bank Can Grant Loan To A Customer
Factors To Be Considered Before A Bank Can Grant Loan To A Customer

Granting loans to customers is one of the characteristics of commercial banks, but they can't just grant loan to any customer, there are some important factors that should be considered before granting loans. Are you looking for loan to finance your business or you have some projects to execute, in this article, we will be discussing about some factors which commercial banks consider before granting loans to their customers.

PURPOSE OF THE LOAN
The purpose of the loan which a customer is applying for is very important, the bank will want to know the reason why a customer will need a loan.

ABILITY TO PAY BACK THE LOAN
The bank in question is interested in knowing the financial of the customer who wants loan to repay back the loan as at when due. So, the ability of the customer to repay the loan he is requesting for is a very important factor.

CREDIBILITY OF THE CUSTOMER
Banks also check credibility of a customer when giving out loan. The bank will have to study the Customer, also study the bank account of the Customer to know the flow of cash in and out of his account in order to determine his credit worthiness.

SOURCE OF INCOME TO REPAY THE LOAN
The bank is interested in knowing the source(s) of income of the Customer applying for the loan so as to know if he can pay the loan he is applying for as at when due. A customer with viable source of income is more likely to be granted loan by a commercial bank.

FINANCIAL POSITION OF THE CUSTOMER'S ACCOUNT
The bank will have to study, analyse and investigate the the financial position of the customer to determine his credit worthiness before giving loan. The bank will not give loan to a customer who is about to go bankrupt.

TOTAL AMOUNT OF MONEY APPLIED FOR AS LOAN
The bank will also consider the total amount of money which the customer is applying for, then they will match it with their ability to give out the loan and the customer's ability to use the loan judiciously and repay before or as at when due. This is after the bank has studied the financial position of the customer.

PROVISION OF COLLATERAL SECURITY
The will ask for a collateral security from the customer applying for the loan in order to cover the amount of loan taken. Some customers use houses, lands, shares, cars, etc as collateral. The importance of collateral security is that in case the customer defaults in repayment of the loan, the security can be converted to offset the cost of the loan.

PROVISION OF REFEREES OR GUARANTORS
The referee is someone who will stand in for the person applying for the loan incase he defaults. You have to be careful when being a guarantor for a person applying for loan from a bank because I know of so many people that lost all they have because the person they stood in for defaulted in the repayment of a loan from the bank. The referees may be required to provide a land, stock or security for the loan.

VIABILITY OF THE BUSINESS
The bank will take some time to study the business critically in order to know whether the business or project is viable before granting loan. The loan request will not be granted if the business is not viable. The bank might not give loan to someone who is requesting money for party or celebration.

PERIOD OF REPAYMENT OF THE LOAN
The repayment period is very important when applying for a loan from the bank. The bank wants to know how long it will take the customer to pay back the loan if he gets it.

CONCLUSION
If you are thinking or making plans to get a loan from the bank, the factors listed above are very important. Infact, if you don't meet up with 95 percent of them, you might not get that bank loan. 

If you have any question, suggestions or contribution, you are free to use the comment section.

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