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. Bad credit history is exhibited by ones financial history and which should be considered before the financial institution accepts to be involved with the current borrower. The borrower who is seen to have cleared all previous loans on time is seen to be in a better position to clear the loans on time. A new creditor should be assessed according to the frequency of deposits which they have been able to make previously with the institution.
Inadequate planning for borrowed money will result in bad debts. When a borrower is not able to budget well on the loan money they get they end up investing it wrongly which means they will most likely not get the expected results of profit from it. The eventuality of this is that their loan payment will be delayed which may at times become difficult to settle them leading to bad debts. The financial institution should thus be in a position to assess when someone is borrowing their money in order to know the validity of the project they want to be involved in.
Financial institutions are charged with the responsibility of ensuring there is proper security for loans they are about to render. There have been cases of dishonest persons who have in the past given a wrong record of their security to get a loan. In case where such a mistake is committed the institution ends up on the losing side with the tricksters carrying all the money home hence incurring very heavy losses. Trustees presented should have a proper financial record and ability. Trustees are defined as persons who are in a position to come in and help settle a loan in case the borrower is not able to. These trustees should therefore meet all the legal requirements before being accepted here.
Some institutions can only be well defined as growing financial institutions. This is based on their ability to handle major credits. Any money coming in and going out at the moment is very crucial which makes it that they cannot serve a large financial base. This calls for high intelligence when dealing with the creditors in order to see to it that bad debts are not encountered.