LOAN DISBURSEMENT: THINGS TO BE TAKEN INTO CONSIDERATIONS BY THE BANK AND FINANCIAL INSTITUTION
Loan disbursement is the process of paying out the loan proceeds to the borrower; it is when the borrower receive all or portion of the loan. This may also include upgrading, renewal and restructuring of the loan facility.
There are things which the Bank and any Financial Institution is required to take into consideration at a time of loan disbursement in order to avoid credit risks. To mention few;
Character of the borrower: the borrower must have experience, education and knowledge over the business in which he or she wants to be financed. The bank of financial institution in order to avoid risk has to look into credit history of the borrower whether is capable of repaying the loan or not.
Plan for repayment; there must be a specific plan on how the borrower will repay the loan, incase there will be difficult in repayment, the bank or financial institution will venture into security as shall be pledged.
Capacity to repay the loan; in this aspect, the bank or financial institution has to look into the cash flow of the borrower to find out, if has capacity to repay the loan; Example, If it is a short term loan facility, the Bank or Financial Institution has to consider the creditworthiness of the borrower, in that, it has to seek for the income statement, cash flow statement, and balance sheet statement.
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