Understanding Credit Analysis Software And Its Processing Stages

We Know for a Fact That Most of the people are not aware of some terms like financial spreading software, credit analysis, and more. If you are among them, don't worry. We have got your back.

When we talk about the credit analysis process, it refers to calculating the loan application of the borrower to find out the financial health of an entity and its ability to generate enough cash flows to service the debt and liability. In easy words, a lender performs the credit analysis procedure in potential borrowers to find out their creditworthiness and the level of credit risk connected with the extending credit to them.
During the credit analysis procedure, a credit analyst may make use of a plethora of techniques, risk analysis, trend analysis, flow analysis, ratio analysis, and asset based financing factoring to name a few. Now these are some of the techniques which are used by them to examine the financial performance of the borrower. This will help in determining the level of risk related to the entity if any.

The stages in credit analysis procedure

The credit analysis procedure is a big one, lasting from some weeks to a month or more. It begins from collecting all the information to the decision making procedure when the lender decides whether or not the application will be approved.

The mentioned below factors are the key stages in the credit analysis process:

Information collection:The very first stage in the credit analysis procedure is to gather all the information about the credit history of the applicant. Particularly, the lender is more than interested in the past repayment record of the customer, organizational reputation, financial solvency, as well as their transaction records with the bank and other financial institutions. In addition to this, the lender may also have access to the ability of the borrower to generate more cash flows for the entity by taking a look at how effectively they utilized past credit to grow its core business activities. Moreover, the lender will also gather details about the main reason for opting for the loan and its feasibility.

Information analysis: All the information which is gathered at the first stage is analyzed to find out whether or not the information is reliable and correct. Corporate and personal documents like the passport, corporate charter, trade licenses, corporate resolutions, agreements with customers and suppliers, and other legal documents are scrutinized to verify and determine if they are accurate and genuine.

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