What should lenders do before they lend money?
Lenders should do at least three things: • Make a proper assessment of the borrower’s ability to repay the loan. This may involve an assessment of their business plan (the reason for borrowing the money). It is pointless lending money to someone that cannot repay it. • Prepare appropriate loan documentation and, if appropriate, guarantee documentation. These documents will be the best (probably only) evidence of the terms of the agreement if there is a dispute. • Consider whether they should insist on obtaining security over some assets, and whether any assets offered as security are worth an amount sufficient to cover the loan and potential enforcement costs. Obtaining security is only worthwhile if the asset secured is worth something.
