FIVE (5) DIMENSIONS OF CREDIT/LOAN ANALYSIS

Are you saddled with the responsibility of processing loan applications for corporate
clients? Do you analyze loan applications of corporate clients and recommend same for
approval and disbursement?
If yes, how thorough and credible is your loan analysis with respect to these Five
Dimensions of Credit Analysis or Techniques: Management, Business, Financial,
Industry and Collateral analysis. Thorough loan/credit analysis cannot be
overemphasized as far as lending business is concerned. You only have control over
undisbursed loans, as soon as the client's account is credited, the control button is no
longer within your grasp.
Hence, any corporate lending without due attention to these five major analyses
amongst others, is dead on arrival.

1. MANAGEMENT ANALYSIS: Who are the pilots of this business? What's their
educational background and qualification? How experienced are they in running and
managing business? How capable are they? Are they credible? What's their approach
to new product development, competition, suppliers etc? Any affiliation to people in
authority? How connected are they? Will their connections aid your recovery efforts if
the loan goes bad or complicate and jeopardize your recovery efforts? Is the business
being managed by family members only? Any expatriate among the management
team? Any business continuity plan in place? These and many more are questions that
aid your credit analysis process and loan decisions during credit committee.

2. BUSINESS ANALYSIS: This focuses on the thorough SWOT analysis of the

borrower's business and the associated direct risks it could have on the business
performance (sales, profitability/ROI acceptance and market share) and indirectly on
loan repayment. SWOT is an acronym for strength, weaknesses, opportunities and
threats.

3. FINANCIAL ANALYSIS: This speaks to the capital structure of the business. Is the
business mainly funded by debt or equity and both? What percentage is debt? What
percentage is equity? Which is higher - debt or equity? What are the risks of lending to
a business funded with more debt compared to equity? What are the applicable
financial ratios? Etc.

4. INDUSTRY ANALYSIS: What is the effect of PESTEL on the business you're

profiling, assessing, analyzing and packaging for loan? PESTEL is an acronym for
Political, Economic, Social, Technological, Environmental and Legal.

5. COLLATERAL ANALYSIS: What is the available collateral for the loan? Who owns
the items to be used as collateral? How accessible are they? Are they movable, Is there
a general market for such items? Are they easily convertible? Do you need the service
of any specialist during confiscation? How genuine are the title documents?

Identify major risks associated with these analyses, ensure such are properly modelled
and mitigated prior to approval and disbursement.

Hassan Afolabi, Credit Risk Manager @ BizNurture Financial Services Limited.

08025707926