Borrowing money entails taking financial risks. Therefore, it is essential to evaluate certain criteria for granting a loan to reduce it.

Delinquency is a problem that has existed for a long time.  As of August 2021, the Adjusted Default Rate in Mexico had reached 4,98%, according to the National Banking and Securities Commission (CNBV). Therefore, adopting accurate credit standards can significantly lower the chance of loss.

With this in mind, good financial behavior demonstrates that potential borrowers have the financial means to pay their obligations. Therefore, establishing reliable criteria for granting credit can considerably reduce the risk of loss.

5 criteria for granting a loan

It is critical to analyze at least the following for effective credit risk management:

1. Credit history

The credit history of your potential clients relates to their reputation for paying their debts on time. For example, how much money they’ve borrowed before and whether they’ve paid it back on time.

This is an important criterion for granting credit since it shows how a borrower responds when confronted with his commitments. On the other side, using this data, you can create a profile that summarizes an applicant’s borrowing habits and capability.

2. Financial situation

You can know the financial situation of an institution through the balance sheet, accounts receivable and payable, income flows and their profits and losses. You can use all this information in your favor for credit risk management, since it gives you a fairly clear idea of ​​the current performance of the organization and its payment capacity.

3. Annual return

This is one of the most relevant criteria for granting a loan, because it allows you to know the annual return that an organization obtains as a result of its investments. Thus, you can accurately assess its ability to take advantage of its resources and generate profits.

4. Tax and legal situation

The Tax Administration Service (SAT) in Mexico, and the Office of Foreign Assets Control (OFAC) of the United States Treasury Department, for example, both publish blacklists. You probably don’t want to do business with organizations that feature in them since they’ve been marked for non-compliance or illegal practices.

5. Client diversification

It’s crucial to know how many clients a company supplies, as well as the quality of those clients. To put things in perspective, having a single client is not the same as having ten, because the first case entails higher dependence and, as a result, greater risk.

Benefits of a credit management and business loan software

In many cases, evaluating all of the aforementioned award criteria requires a large investment of time and money. However, a software for credit management and business loans will help you to know each of these details quickly and transparently.

The CRiskCo API, for example, allows you to learn about the financial position of your potential clients in a matter of minutes. To accomplish so, it takes all financial data from the SAT or used accounting systems and runs it through artificial intelligence and machine learning to offer you with meaningful data and a comprehensive risk analysis.

CRiskCo also provides an API that you can integrate into your system, as well as a platform with standardized data that you can use right away without any further configurations.