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How do you assess your borrowers?

How do you assess your borrowers?

Ablrate operates a ‘three lines of defence’ model when assessing credit risk.

1. LOAN ORIGINATION AND DUE DILIGENCE

Ablrate employs experienced personnel who know the lending market or have relevant financial market experience and understand the risks in lending. Front line staff are responsible for undertaking the appropriate Anti-Money Laundering and Know Your Customer checks, as well as undertaking detailed due diligence on the borrower and the lending proposal.

2. OVERSIGHT

On completion of the due diligence, a second-team who will not include personnel who completed the initial review and due diligence collection. They will challenge comments made in the documentation and also ensure that the proposal is in line with the current and most up to date credit guidelines.

3. INDEPENDENT ASSURANCE

Ablrate uses external agencies for verification of data. The credit team monitors and reviews the service providers regularly.

Key Questions asked when evaluating a Borrower and a loan:

• ‘Character’ refers to the integrity of the business and its management. Honest borrowers of good character are more likely to meet their obligations.

• ‘Ability’ refers to the legality of the contract between the lender and borrower.

• ‘Means’ refers to the borrower’s financial, technical and managerial means.

• ‘Purpose’ refers to the reason for granting credit, which must be unambiguous and acceptable to the lender.

• ‘Amount’ refers to the quantity of the loan which should be sufficient to cover the purpose of the borrowing.

• ‘Repayment’ relates to the ability of the borrower to repay the loan, by considering the source of repayment. This repayment ability is obviously of critical importance in lending and should be demonstrated not through projected future accounting profits but from projected cash generation. In deciding the form of lending, we also consider the repayment structure being considered, e.g. bullet (a one-off lump sum repayment of the principal) or amortising (that is, principal repayment through instalments).

• ‘Insurance’ refers to a safety net that Ablrate can rely on if the loan is not repaid from other means. This might be security or the security provided in the loan, the conditions under which the loan is granted, or third party credit-enhancement.

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