Definition of a Lender
A lender is an individual, a public or private group, or a financial institution that makes funds available to another with the expectation that the funds will be repaid. Repayment will include the payment of any interest or fees. Repayment may occur in increments (as in monthly mortgage payment) or as a lump sum.
Lenders may provide funds for a variety of reasons, such as a mortgage, automobile loan or small business loan. The terms of the loan specify how the loan is to be satisfied, the period of the loan, and the consequences of default. One of the largest loans consumers take out are home mortgages.
Qualifying for a loan depends largely on the borrower’s credit history. The lender examines the borrower’s credit report and more. The report helps the lender determine whether the borrower is comfortable managing payments based on current employment and income.
The lender may also evaluate the borrower’s debt-to-income (DTI) ratio comparing current and new debt to before-tax income to determine the borrower’s ability to pay. Lenders may also use private investigating firm to check score in the borrower’s credit report to determine creditworthiness and help make a lending decision.
When applying for a secured loan, such as an auto loan or a home equity line of credit, the borrower pledges collateral this is what we provide to borrower to present to banks or investor. The lender evaluates a borrower’s available capital. Capital includes savings, investments and other assets which could be used to repay the loan if household income is insufficient. This is helpful in case of a job loss or other financial challenge. The lender may ask what the borrower plans to do with the loan. Other factors may also be considered, such as environmental or economic conditions.
Banks, savings and loans, and credit unions may offer Small Business Administration (SBA) programs and must adhere to SBA loan guidelines. Private institutions, angel investors, and venture capitalists lend money based on their own criteria. These lenders will also look at the nature of the business, the character of the business owner and the projected annual sales and growth for the business.
Small business owners prove their ability for loan repayment by providing lenders both personal and business balance sheets. The balance sheets detail assets, liabilities and the net worth of the business and the individual. Although business owners may propose a repayment plan, the lender has the final say on the terms.
- A lender is an individual, a public or private group, or a financial institution that makes funds available to another with the expectation that the funds will be repaid.
- Repayment will include the payment of fees.
- Repayment may occur as a lump sum.