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5’C Principles in Business Loan Analysis in SME Loan
5’C Principles in Business Loan Analysis in SME Loan
At present, many people have inquired about the bank’s criteria for granting business loans, SME loans to the public. Banks or financial institutions have criteria for analysis. Business loans, SME loans , what factors do you take into account in approving business loans, SME loans because there are problems in applying ? Business loans, SME loans . Banks are often strict in lending. Because the amount of bad debt is increasing every day. Therefore, we have compiled a list of guidelines that banks will focus on. and consider releasing Business loans, SME loans for you? or will release more or less Or leave with a condition or not, as follows, which is known as the 5’C principle.
Namely:
- Customer behavior (CHARACTER)
- Ability to pay debt (CAPACITY)
- Capital (CAPITAL)
- Margin (COLLATERALS)
- Situation (CONDITION)
1. The character of the customer (CHARACTER)
customer behavior It is the first important factor to consider for approval. Business loans, SME loans , about what the borrower is like How honest are you? How much business knowledge and experience do you have? Have a bad financial history? If you are an old customer of the bank, you can see it from The result of contact with the bank in the past that Is it good to comply with the conditions or agreement with the bank? Or may be traced from the business industry, whether it is SUPPLIERS or CUSTOMER of customers in the market. Remember that if a person is not good then No matter how good the project is, there will be problems.
2. Ability to pay the debt (CAPACITY)
is the key to consideration Business loans, SME loans , credit officers need to study the customer’s business and how much they are able to repay the debt back to the bank. In most cases, it should be income that the business can make a profit to pay back its debts. If analyzing it, it is found that the project is not profitable enough to pay off the debt. should not be considered Business loans, SME loans , income to be used for repayment should be net income. from business operations after various expenses and should be a fixed income rather than a temporary income such as income from commissions on this matter .It should also be followed up to see if the debt is repaid as scheduled or not. Because it usually happens as follows: when the customer has already received income instead of paying the debt Used in other ways, such as used to expand the business by bringing working capital to operate, so the repayment period is set. is therefore an important part of the release Business loans and SME loans
3. CAPITAL
Generally, financial institutions will provide Business loans, SME loansto any business must also consider that How much has the borrower invested in his personal capital? Because the more the borrower brings down his personal funds, the more The bank’s risk is less. Because the borrower brings down a lot of personal funds, it is necessary. Therefore, the ratio between capital and debt (D/E RATIO) must be taken into account. However, it depends on each type of business how much D/E RATIO should be, such as a low profit business. It should have a high investment, such as APARTNENT rental business, which has not much income compared to investment. Borrowers must use their own investment for the most part. look at the other side is how much the business income is a requirement for the ability to apply for credit. But in business, the successful business. Must have sufficient funds to operate. Business loans, SME loansas required The borrower should raise enough capital. And banks should not be able to lend even though they know that they are not sufficient for doing business, otherwise it will be a disadvantage for both parties.
4. Collateral (COLLATERALS)
in the analysis Business loans, SME loans , although it is necessary to analyze the above information. will be the heart The thing to keep in mind is collateral, because no matter how good a business is, it may be affected by unforeseen circumstances or circumstances. cause business problems In order to hedge the risks that the bank may receive is collateral. which depends on the consideration of how much collateral should be considering the risks If the risk is low, the collateral is less. If the risk is high, the collateral should also be high. Although collateral is important, there are often times that banks provide. Business loans, SME loansunsecured type (CLEAN BASIS) because that Customers are in good financial standing. has a reputation that is accepted by the society Contacted the bank for a long time. And sometimes it also depends on the type of loan requested and how risky it is. May be less risky, such as requesting to issue L/G (submitting envelope) without taking work, selling to reduce the period of work which the borrower has delivered the work Requesting money only or opening L/C to purchase machinery The bank may only demand partial collateral. because they will get another part of the machine as a guarantee
5. Situation (CONDITION)
It is something that is beyond the control of many factors. Whether it is a problem caused by the economic situation both inside and outside the country government policy problems currency exchange rate changes environmental problems market volatility rising and falling prices of raw materials Credit officers should analyze these situations and always anticipate the situation in advance of the business. Always study and follow the news closely. will be able to release Business loans, SME loans efficiently or promptly resolve problems Another way to reduce the risk is not to give too much business loans or SME loans to any business. It should be spread across different types of businesses.
