Nearly $17.5 million is borrowed from banks each year by individuals wishing to support their small businesses.
Worried about funding and loaning to small businesses? Here are a few things you can do to avoid any risks.
Minimize Credit Risk
For lenders, the biggest gamble is when they loan a large sum of money to an entity with a low credit score. If the borrower has a low chance of repaying the loaned amount any time soon, it may be a sign of trouble.
Through a prefunding procedure, they can assess the credit risks associated with the borrower and other parties involved. As a lender, make sure to thoroughly look through the financial histories of the parties involved, and detect any discrepancies.
Verify Assets
The next think you should do is verifying the borrower’s assets. Are these in good condition? Do they have financial value? Is the borrower the sole proprietor of said assets?
Often, borrowers try to pass off somebody else’s assets as their own to get a loan for their small business. You want to ensure that all the documents and attestations submitted to you are authentic and accurate, and there is no misrepresentation. The sooner you verify these, the quicker you can proceed with minimum risks!
Assess Market Risk
Market trends need to be kept in mind when prefunding. This means you’re in for some forecasting based on a deep understanding of the system. Before you set out to lend, keep a tab on market rate fluctuations. You’ll also want to be aware of the currency risks and interest rates associated with the money lending process.
Evaluate Legal Risks
Statutory compliance risks are yet another thing lenders need to be wary of. It is your job to look for any red flags that may emerge during the process, and identify if any illegal methods have been adopted.
Failure to conduct valid due diligence prior to issuing the loan may land you in trouble as well. Your bank may find itself involved in a legal dispute, and your reputation as a lender will be at stake. Make sure the compliances are met and your borrower doesn’t take any undue advantage.
Hire an Appraiser
One of the most useful things for lenders to do to minimize risks is to hire an appraiser. This allows them to get authentic and thorough business valuation, and get appraisal of property, machinery, and equipment. The site inspections provided by appraisers make it a highly favorable
option amongst lenders.
Have our expert appraisal services take care of your needs! Independent Appraisal Experts LLC provides detailed reports and thorough analyses of a company’s assets.
For quick and reliable nationwide appraisal services, get in touch with our team or call at 801-809-2565 for any further queries.
