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Credit Policy for a New SME Lender: The 5 Decisions to Make First
A practical starting point for small business lenders and fintech founders from a credit risk specialist
As a founder of a small lending company, you raised funds and disbursed most of them to 20 borrowers. One borrower stops paying.
You have no idea who approved it, on what basis or what the next course of action should be.
If you do not have an answer in place, then you do not have a working credit policy
Most new lenders write a credit policy after a bad loan or loss that hits the books.
We lend to Software and IT services companies with at least 3 years in business, turnover of INR 2Crore to INR50 Crore and loans of INR 10Lakhs to INR1Crore. Let us take this to make it simpler; of course, you can swap it with the industry you serve.
We stick to one sector, so that our team can judge cash flows, contracts and billing cycles well. We do not lend to trading firms because of thin margins, and volatile inventory or real estate companies because of lumpy cash flows and long cycles.
