Information collection stage
The first step is to collect the information pertaining to the client with regards to their financial history, record of loan payment, character, individual reputation and insolvency. The credit analyst should know about the purpose of the loan, amount and if it will be enough for the project. Information included should cover sources of repaying the money.
During this stage information is analysed to judge accuracy. The analyst needs to scrutinise or thoroughly check identification information, trade licence, corporate charter, resolutions and any other documents submitted. The financial ability of the client is also checked. Using balance sheet, cash flow statements, income statements the analyst works out different financial ratios. The analyst will also look at the viability and effectiveness of the project which the loan is intended for. The banker will feel free to grant loan if the project is productive, expandable and profitable. They analyse the possibility /ability of the client to repay the loan by looking at the next cash flow and income of the applicant.
Decision making stage
The analyst identifies and measures the credit risk associated with the loan application and determines whether the level of risk inherent is acceptable or not. If the analyst is satisfied that the risk is acceptable and convinced that the loan will be repaid, he/she prepares and submits recommendation to the appropriate loan approval authority.