Credit analysis refers to evaluation of the potential return to the borrower as well as the risks. This procedure is also carried out in order to identify possible future clients who may not honor their obligations causing a risk to the organization. Through credit analysis, it is possible to identify whether the client has sufficient financial standing and ability to repay the debt.

Concept

Credit analysis is an organized process for analyzing data in order to enable the identification of certain issues concerning the borrower. This process covers a broader framework than simply analyzing the creditworthiness of a customer and financial data for decision making purposes lending.

According to Santos (2000), the process of analysis and lending refers to the use of two techniques: the subjective and objective statistical techniques. The first concerns the technique based on human judgment and the second is based on statistical processes.

Breaking financial news further explains that this technique is based on experience, information availability and sensitivity of each analyst and credit approval.

Subjective analysis of the borrower’s credit is important since through experience a loan officer can identify factors concerning character, capacity, capital and conditions of payment. However, this analysis cannot be performed randomly, you need to be grounded in technical concepts that will guide decision making.

Some small businesses do not have the financial ability to hire a credit analyst, so companies have emerged that can give support to these entrepreneurs, aiming to reduce the financial losses.

All processes described below are made by these companies and their reports with the results of credit analysis also includes a number of queries on SPC or SERASA.

Personal credit

The process of credit analysis for individuals seeks to identify risks to the lender. The analysis will take place according to the needs of the applicant and within an acceptable level of risk based on the documentation submitted.

In addition, the subjective analysis of credit and breaking financial news is not an exercise aimed at the fulfillment of legislative provisions, but aims to reach a clear decision on the granting or not granting of credit to the requestor.

However, the process of subjective analysis, as its name implies, is not an exact science and there may be many solutions for every situation given that the analysis can bring out options during the decision-making process.

The process of credit analysis for individuals is based on the quality of information obtained and the resulting decisions. These decisions should be practical and feasible within a functional model adapted to the reality of the organization.