Top Four Lending Risks and Their Mitigations

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Lending is a business that is as lucrative as it is risky. A lender’s greatest fear, no doubt, is that a disbursed loan will never be recovered. Therefore, it is pertinent that the lender conducts a thorough risk assessment, and come up with robust mitigations, before approving a loan.

Usually, different businesses have peculiar risks associated with them. However, this article will examine four general risks associated with most business loans and their mitigations.

1. Unwillingness to Pay

Unwillingness to pay arises in situations in which the borrower has the capacity to pay but lacks the willingness to make payment. An unwilling client usually has a bad attitude since money is not the problem. This risk is capable of making the loan go very bad and must be taken seriously.

  • Mitigation
  • Do proper references about the client’s character before disbursement.
  • Ensure that you take the credit history of the client seriously.
  • Ensure that reputable guarantors are used to secure the loan.
  • Accept a postdated cheque from the client for pressure purposes.

2. Disappearance

Disappearance occurs when all the parties to the loan have either absconded or are nowhere to be found. The situation can be very frustrating for the lender because the risk of writing off the loan, and making losses, becomes very high.

  • Mitigation
  • Ensure that the rent receipts of the client will be valid for the duration of the loan.
  • Ensure that reputable guarantors are used to secure the loan, preferably those with permanent residence.
  • Get additional details (such as the addresses of family members) before the loan is disbursed.

3. Competition

Competition can result to low sales in the short run and then completely exterminate a business in the long run. Corporate history is full of stories of brands that went moribund due to stiff competitions. The story of Nokia is a perfect example in this regard. Therefore, the lender must not take this risk for granted.

  • Mitigation
  • Ensure that client has other income sources that can pay up the loan in the event of low sales or bankruptcy.
  • Conduct a proper assessment to ensure that the business is viable before disbursement.
  • Ensure that the client has multiple sales outlets.
  • Insure the loan with a reputable insurance company.

4. Government Policy

Government policy, although quite dynamic, undoubtedly determines the legality to do business. A business could be legal today and becomes illegal tomorrow. And there is nothing anyone can do about it. Also, government regulates specific business activities. Consequently, the existence of a business comes under serious threat if it is established that it is operating illegally.

  • Mitigation
  • Ensure that client has all the necessary and valid paper works before loan disbursement.
  • Seek legal advice before loan disbursement.
  • Be up-to-date with changing government policies

Image Sourced from Pixabay



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These are basic things that one should pay attention to. Even when you want to borrow someone money, you can use some of this tips to judge a friend before lending.. very educative post

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