Lending Process: When Lending Becomes Karma And Dharma Of Algorithm

Published on: 2017/08/24


While welcoming total automation of the lending process, banks should not neglect training the latest generation of banking professionals in theories of analysis and appraisal

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Lending process in banks, lending, banking, finance

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Lending process in banks

Lending, which is also known as financing is the giving of money or property to another person on a temporary basis with the condition for it to be returned. The money returned is usually accompanied by an extra amount, which is called interest on the loan. When the lender assumes that the risk of lending is higher, the rate of interest charged is also higher and vice versa. The repayment for any loan taken can be done in a lump sum or in monthly payments called installments. Lenders can be individuals, banking institutions, or other private institutions.

Lenders are not like shareholders who participate in the working of the business. Lenders have no ownership of the businesses to which they lend. They only provide the money at a rate of return. In cases where businesses declare bankruptcy, the lenders are paid first, followed by the owners.

Startups face difficulties in securing loans from traditional lenders as they are seen as risky ventures. Traditional lenders tend to charge them a very high rate of interest. As a result, startups turn to more modern methods of borrowing. The new methods of lending today are:

  1. Peer-to-peer lenders – Individuals who lend money through online organizations
  2. Crowdfunding – A term that we come across often. It means borrowing through organizations like Kickstarter, which provide a platform to share ideas and request funds. The lenders usually lend out of a passion for the idea and do not need any interest to be paid
  3. Private party loans- Loans taken from family or friends. It is in the best interest of both parties to have a loan agreement made.
  4. In cases of businesses where there are multiple partners, the partner(s) can act as lenders. There has to be a legal contract drawn so that the lenders’ role is clearly defined along with the terms for receiving regular payment.

Lending made easy with technology

With everything being online today, getting loans has become easier. Online loans are available quickly and can be paid easily from the comfort of the house. Applying for loans online gets simpler as the lenders can link the loan to the bank account.

Keeping track of the loan application is a lot easier. Applying loans can be a time-consuming task. Online loans can be applied at any time, making it extremely convenient.

With the improvement of technology, businesses have become easier. With easier processes and methods to track transactions, business has simplified itself. With the advent of newer technologies, it looks like a bright future is in store for all.

Read more – When lending becomes the karma and dharma of algorithm by PD. Sankaranarayanan