Criteria for Providing loan set by Bank

A bank has to set some criteria for providing loans. Persons who come to a bank to demand a loan, the bank should not provide loans of random choice, not by examining and investigating. If a loan is provided without proper investigation it will lose the principal and interest. Therefore, the bank always has to follow some criteria for providing loans. These are as follows:

1. Personal Character

Before providing a loan, a bank should make an inquiry and examination of a person who comes to the bank with the proposal of a loan. Though it is very difficult to find out the true character of a person, it must be checked out. The bank should study whether the person has good character with the intention to pay the loan or not, whether he is a person of criminal nature or not, whether a creditor has filed a petition against him in the court for recovery of debt, or not. If the person is doubtful in nature, character, and the bank uneasiness to trust him if so, it should not accept the loan proposal. If he possesses good character and other criteria are satisfactory to the bank, only the loan proposal be accepted.

2. Capacity or Competency

First of all, it should be checked out whether the person (proponent) is a person capable under the law to make a contract with a bank or not, i.e. according to the contract Act 2056 (1999). If he is a (capable) competent person, thereafter the bank should know what kind of qualifications the proposal make does have and in which subject or business he is related with, whether he has competency or skill in that business or not. Under this heading, the bank should carefully examine all things, which are relating to the capacity of the borrower.

3. Capital

If any person or businessman comes to make a proposal for a loan in a bank, economic conditions should be examined. His demand for money should be matched with the status of his household conditions, how much the sum of money he wants to invest in his business. If the economic condition of the proponent is poor or less, or inferior to the amount of loan, the bank should reject his proposal. In brief, the quantity of amount of proponent financial condition or capital should be stronger than the quantity of amount demanded.

4. Security

Security is considered the most important thing of the criteria while providing the loan by a bank, It should not provide a loan without security. The securities too are of many kinds. Preference should be given to the security, which can be sold immediately in the market. It should flow loan, only after considering what sort of business of the proponent and what type of his property of security that is proposed, etc. If the person is not capable to give security if the loan proponent proposes low quality of security and it cannot be satisfactory to the bank, It should not accept the proposal of loan from the proponent. There must be good security.

5. Credit Information

The bank should find out the credit information of the person or businessman who comes to a request for a loan. Credit information such as the loan such as loan proponent's character, the securities given to the bank, the detail of the property and their reality, a bank can get all information about loan proponent and the businessman. It can be a great help to the bank. It is difficult for a bank to find out the real condition of the loan proponent. Hence, it is easy to know the condition of the loan proponent from the persons or businessmen working together in the related sector whether the loan proponent is blacklisted for not paying the debt or not, how trustworthy these concerns. It can be understood through the medium of information. There will no problem in providing the loan if the information received is satisfactory. If the information received is not positive, the bank rejects such a proposal. Therefore, the bank should make a decision on whether to provide the loan or not only after analyzing the documents that the proponent submits to the bank. Credit information is one of the criteria for providing a loan to a borrower.

6. External Environment

Before providing a loan, a bank always should evaluate the external condition or environment of the industry, business shown by the loan proponent, whether the business is saleable or useable in the market or not, the proposal of loan proponent should not be approved through the above mentioned five grounds are received satisfactory by the bank. Because businessmen cannot gain profit from the financial position which may deteriorate. Therefore, while providing loans, it should study the external environment, too. In business communities, and external environment can be taken as an essential factor.