Lend like a pro #4- Managing Risks from Lending
07 Jul 2022
All investments carry some degree of risk with them. And lending to SMEs can be risky.
But rather than sweeping that topic under the rug, we want to tell you everything there is you need to know. After all, we only fear what we do not understand.
Equipped with this information, you will be able to make better lending decisions and greatly minimize the lending risks.
So, what are the risks of lending on the Fundkiss platform?
Businesses tussle with risks every day. At times, these risks materialize in the form of unforeseen events that adversely impact the business and its ability to make the scheduled repayments. For instance – delayed accounts’ receivables causing cash flow issues, shipping delays or even a pandemic.
The risk with lending to a business is that they may not be able to repay in time or at all in the future. Lenders should be aware that lending to businesses comes at the risk of losing the capital you may have lent.
Okay. What happens when a borrower defaults on their payments?
We try to minimize this risk early on with a robust credit assessment process. Before approving a loan application, we assess both – the borrower’s repayment capacity and their willingness to repay the loan.
The borrower’s repayment capacity is assessed by analysing their financial documents such as bank statements, audited and management accounts, and tax file returns.
We also work with the Mauritius Credit Information Bureau (MCIB) to review borrowers’ credit history information and check their previous credit repayment track record. The MCIB centralises the credit history information of individuals and legal entities in Mauritius.
Despite that, should a business default, the Fundkiss team and our recovery partners will initiate the process to recover your outstanding capital on that project.
Fundkiss takes the initiative to lead this process. To read more about our monitoring and recovery process, click on the button below.
Okay, I understand. What can I do to minimise this risk?
As a lender, you can significantly reduce the risk of your capital loss by diversifying your portfolio when investing on the platform.
The more diverse your portfolio, the more stable your returns and the lower the risk of capital loss.
Learn more about diversification in the blog article below, and begin lending like a pro!