Private lending investors know that the main way to avoid defaults is to select potential customers. Such selection is carried out on the basis of an economic analysis of the client's activities and his creditworthiness. The chief analyst of the monetary portal FinCor gives additional information regarding this issue.
The creditworthiness of the borrower is the financial position of the borrower or company, which minimizes the risks of the lender and gives confidence in the efficient use of borrowed funds. Under the terms of the loan agreement, the borrower agrees to return the funds within a specified period.
There are many ways to really assess the creditworthiness of a borrower. And, nevertheless, it is impossible to be absolutely sure of the forecast.
The main factors of borrower creditworthiness are:
Analysis of the return on credit, which is based on the profitability ratios of revenue, total capital and equity.
Analysis of the borrower's equity, which is based on the coefficients of autonomy, mobility and the ratio of capital to total debt.
Analysis of the solvency of the borrower, based on coverage ratios, absolute liquidity, the ratio of payables and receivables.
The procedure is carried out taking into account the coefficients of all groups, after which a verdict is issued on solvency - insolvency of the client. It is also necessary to take into account secondary factors of the borrower's creditworthiness, such as collateral pledged, regional risks (risks of investing in the region where the company is located), credit history of the company or client, subjective solvency factors. Qualitative information about a potential client can be collected through communication of a bank loan officer with a borrower.
During the conversation, it is necessary to find out the following points about the activities of the credited:

Dependence on factors not related to the market, such as privileged relations with the authorities, the influence of state bodies, litigation.
Market position, namely competition, change in demand for a certain type of product, borrower position in the market.
Dependence on market factors, such as price markets, supplier-buyer relations.
Finance, control and accounting (rules of financial regulation, a high-quality reporting system in accounting, cost and risk control).
Company management.
Dynamics of financial indicators (profitability, stability of turnover in bank accounts, the possibility of financing from the outside.
After such a conversation, the loan officer makes a general opinion about the borrower: this is the circumstance that is decisive in the provision of a loan. In addition to assessing the creditworthiness of borrowers based on a system of financial ratios, methods are used based on cash flow analysis and business risk analysis.