One of the greatest challenges facing microlending business is bad loans. When there is too much bad in the business it can lead to the collapse of the business. There are a lot of things that actually cause this bad loan. Some of these microfinance owners donít take certain things into consideration before disbursing the money to the client. For you to actually avoid a bad loan there are certain things you need to take into consideration before disbursing money to your clients. The following are what you must take into consideration:
1. The capacity on the client: When a client approaches you and applies for a loan, the first thing you need to do is to examine the capacity on the client. You can start by investigating the kind of business is doing and measure it with the amount of money he or she wants to borrow. If the business cannot service that loan donít disburse the money to him or her because the loan will end up becoming a bad loan. Examining the capacity of a client you want to disburse money to is very important, this will help you to avoid a bad loan.
2. Character and behavior: This area is very important, when a client applies for a loan you can tell the client that the loan will be processed for three weeks. Within these three weeks you can use it to investigate the real character and behavior of the client. You can do this by asking people around who know more about the client. You really need to know more about the client behavior and character before you disburse money to the client. If you disburse money to a client that has a bad character or a bad behavior the loan will become a bad loan.
3. The client Guarantor: Before you disburse loan to any client make sure that the client has a qualify guarantor. The guarantor must not just be anybody, the guarantor must be well to do. Make sure that the guarantor is financially buoyant more than the client that is applying for a loan. Make sure you inform the guarantor of the consequence of what will happen if by anyway there is any default from the person he guaranteed, he will be the person that will pay back the loan.
4. The clientís collateral: This is one of the most important areas that can really help you to avoid a bad loan. Any client you are disbursing loan to must have collateral. The client can use any thing as collateral as long as that thing has monetary value. Make sure that the collateral the client has worth twice the money he or she is borrowing. The collateral can serve as a last resort if the client actually refuses to pay back the loan.
If you can apply all this tips you will stand the chance of avoiding a bad loan in your microlending business.
Hope this article is helpful to you. Wish you all the best.