Money that is offered by a credit institution based on a form of contract between the borrower and the borrowed in order to serve a specific purpose can be referred to as a loan. It is upon the financial institution to come in and determine the truth behind the reasons presented for the loan. The assessment of the need presented for the loan then gives light on whether to render the borrowed money or just let it be. This is judged depending on the various procedures put across by the financial institution. The borrower should be having good financial records which portray no signs of bad credit before. This is judged according to the ability of the borrower to have cleared borrowed debts before. A new borrower can be accepted for a loan based on the number and amounts of deposits they have made over a considerable duration of time.
Inadequate planning for borrowed money will result in bad debts. When borrowing money to inject into a business the aim of the borrower is to accrue better profits from the same and this is not achieved if the plan is not well laid out. If the results of the investment are not as expected and the profits much minimal then it also becomes tiresome to settle the debt. Before giving a loan the financial institution should have gone through the intended use of the money to know whether it will give any returns.
Security for the loans about to be given should also be secured. There have been cases of dishonest persons who have in the past given a wrong record of their security to get a loan. Since the fraudsters have no aim of paying back the money and there is no proper security tied unto them the institution ends up incurring heavy losses. Trustees presented should have a proper financial record and ability. The person appointed by the borrower who will come in and help in the repayment of their loans is defined as the trustee. Trustees should be in a position to provide the needed security to a loan.
Some financial institutions can be termed as young financial institutions. This is based on their ability to handle major credits. When such institutions are faced by bad credit from its creditors they may not be able to meet their growth target as at the beginning their capital base is still as small. A closer look is demanded when handling the borrowers in order to evade bad debts.