Credit Risk Principles

Credit risk is always predictable when you are loaning for your business. Regardless of being a start-up or an already established company, the danger of not being able to pay off your debts always is a probability. There may be different reasons which can cause inability to pay loans. In the first resort, the risk is that of a lender and that it can lead to loss of principal interest and disruption of cash flow.

Axis Capital Business Funding, credit source for business funding for small business owners operating across America has listed the following possible reasons for not paying a debt:

1.  Consumer may not be able to pay because of mortgage loan, credit card or other loans.
2. A company is not able to pay charged debt or secure-tax debt.
3. A business or consumer does not pay a trade invoice when due.
4. A business does not pay an employee's earned wages when due.
5. A business or government bond issuer does not make a payment on a coupon or principal payment when due.
6. An insolvent insurance company does not pay a policy obligation.
7. An insolvent bank won't return funds to a depositor.
8. A government grants bankruptcy protection to an insolvent consumer or business.

Companies like Axis also have credit risk management to be able to envisage the status of your company. Trusted third party managements are also hired to better manage credit risks. There are also companies like Standards & Poor’s, Fitch Ratings, Rapid Ratings which provides such information for a fee. Reviews are more keen and intense.

In Jakarta, Indonesia, the service of third party is usually hired. Expatriates with great credentials are more hired for this kind of tasks since it demands a more crucial and cautious task.

The global financial crisis – and the credit crunch that followed – put credit risk management into the regulatory spotlight. As a result, regulators began to demand more transparency. They wanted to know that a bank has thorough knowledge of customers and their associated credit risk.