Credit check, for funding, project funding
It's important to know the basic check for each Individual, or Registered Entity, While borrowing Funds from outsiders like banks, Financial institutions, Hedge Funds and Other Financial Institutions.
In general Non-Finance background salespeople usually promote financial products without knowing the basic check and keep collecting the documents from client / Entity and submit the documents to the back end team for review. However, the success rate of these clients' profiles are close to 15% to 20%. being the busy Digital Online Lending method.
The sad story, the rest of 70% + client or Entity not in the position to understand why the application was rejected and not progressed ? This is a common issue in India as well as other Green Countries too..
Now, we would like to support the following points to check and review independently and enhance the credit facility pre-qualification :
Applicant Should have at least 5 Years Business Experience in the Industry.
Applicant should have well prepared Business Plan & Cash Flow Projection.
Applicant and Applicant’s Company should have Decent Credit History.
Applicant should have Constant Income flow.
Applicant’s Age between 23 years and 65 years at the time of applying.
A good relationship with your bank, to prove that you may require to submit Bank Reference Letter.
A timely debt repayment history.
A few assets such as FDs, investments, immovable property, etc.
Applicant should not have any Bankruptcy History.
Apart from the above checklist - the Following background check performed by each Bank and FInancial institutions, depends on their Lending Guidelines, country specific risk assesment "ETC."
Credit checks are often mandatory in various financial transactions and services for several reasons:
Risk Assessment:
Lenders and financial institutions use credit checks to assess the risk associated with lending money or extending credit to an individual. A person's credit history provides insights into their past financial behavior, helping lenders predict the likelihood of timely repayment.
Creditworthiness: Credit checks help determine an individual's creditworthiness, which is essentially their ability and willingness to repay borrowed money. Lenders use this information to make informed decisions about whether to approve a loan or credit application.
Interest Rates: Credit checks are often used to set interest rates on loans and credit cards. Individuals with higher credit scores may qualify for lower interest rates, while those with lower scores may be considered higher risk and may be offered higher interest rates.
Mitigating Fraud: Credit checks can be a tool to mitigate the risk of identity theft and fraud. By verifying an applicant's identity and financial history, lenders can reduce the likelihood of approving loans or credit applications made by individuals pretending to be someone else.
Rental and Employment Decisions: Landlords and employers may use credit checks as a way to assess an individual's financial responsibility. For landlords, it helps gauge the likelihood of timely rent payments. For employers, it can be an indicator of an individual's reliability and responsibility.
Regulatory Compliance: In many industries, especially those related to finance, there are regulatory requirements that mandate credit checks as part of the approval process. This is often to ensure responsible lending practices and compliance with financial regulations.
Default Prevention: Credit checks can assist in preventing defaults on loans and credit accounts. By assessing an individual's credit history, lenders aim to identify potential red flags that might indicate a higher risk of default.
Setting Credit Limits: Credit checks are crucial in determining the appropriate credit limits for credit card applicants. Higher credit scores may lead to higher credit limits, reflecting the individual's demonstrated ability to manage credit responsibly.
While credit checks serve important purposes, it's essential to recognize that they are not applicable in all situations, and there are efforts to promote alternative methods of assessing creditworthiness, especially for those who may not have a traditional credit history.
This is for learning and understanding purposes.
Courtesy : www.rupeejunction.com