Finance

Being an adult is difficult. It’s not enough to find a job, save money, and get paid. You will need to save yourself from some major life changes like marriage, pregnancy (if you intend to), home repairs, and make sure you have an emergency fund for unforeseen things like accidents.

When you’re suddenly short of cash, many people go to the bank for personal loans, but if you run into a problem, you may be wondering if the moneylenders can help you raise funds.

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What are Lenders?

The Lenders offer loans that can be used for a variety of purposes, such as working capital, student loans, business loans, & personal loans. Businesses can also borrow money to provide fixed channel loans to businesses where income is irregular.

The lender or lender can initiate the loan process. Usually, borrowers go to the bank to get a loan and want to fill out a loan application form. The information required in this application includes the requested loan amount, purpose, current or future loan, the borrower’s address, the name and address of the guarantor, etc.

Banks can also apply to an individual or company that intends to lend under certain circumstances. Loan seekers are often the ones with the highest interest rates in emerging industries and in this case, they can regularly apply for investment loans or working capital loans.

Types of Lenders in Market

  • Traditional Lenders
  • Alternative Lenders

Traditional Lenders

Traditional lenders are banks, credit unions, and other financial institutions that offer loans to small and micro-enterprises. In general, these lenders offer the best of all commercial loan options and are used as a benchmark against which to compare other lending systems. On the other hand, individuals and companies seeking glory from traditional credit unions have had to complete the difficult task of borrowing corporate finance.

Alternative Lenders

Alternative lenders enjoy a benefit from laws and the same level of protection as traditional lenders. Other examples of lenders are online lenders, peer-to-peer lenders, and crowdfunding. They usually offer short-term loans but do not require a lender to provide support.

For larger loans, other lenders may ask the lender to offer more paperwork than traditional lenders require. Some of the required documents are business and personal accounts, credit reports, business plans, proof of employment, etc.

The interest rate on the loan depends on whether the loan is secured or not. Unsecured loans often have higher interest rates than traditional lenders because of the higher risk of loss.

Every bank or financial institution must follow certain principles of lending to carry their lending business smoothly. As they are indulged in the business where they accept money as a deposit from the public and lend that deposited amount to the borrowers who require funds that too at a fixed rate of interest. The banks and financial institutions are responsible for the flow of money in the whole economy. So they have to follow basic principles to perform their functions adequately.

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Here are the basic important principles of lending:

Safety

Safety is the most important principle of lending by banks and institutions. As they deal with public money so the safety of money generated from the public in the form of deposits is their priority. The deposits are disbursed by the banks / financial institutions in the form of loans to the borrowers who are in need of funds. So they must be sure before lending money to any random borrower. They should check the credit score, repayment capability, income stability, and history of the borrower to keep the money safe and secure.

Liquidity

The basic function of lenders is that they take money as deposits and lend that money on a certain percent of interest rate. Banks and other financial institutions need to maintain certain liquidity to avoid any monetary crisis. They must ensure that the money lent to borrowers will come back on-demand or as per the repayment schedule of the amount.

Purpose

It is a must for every banker and lender that the underlying purpose is known to them for which the applicant is seeking a loan. They must ensure that the amount asked for a loan is for a productive purpose. The purpose of a loan helps in determining whether the risk level is high or low. As it will directly impact the working of the banks. If a loan is raised for a productive purpose then it will ensure that the funds are safe and will be repaid as per the decided terms and tenor.

Profitability

There is a complete process of working the whole lending function. The profit of the banks is the difference between the interest at which the bank accepts the deposit and the interest at which the bank lends money to borrowers. Usually, banks have higher interest rates when they lend money and give low-interest rates to the depositors. They ensure that they earn a certain percentage of profit for smooth functioning.