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5 Simple Strategies For Recovering A Bad Loan

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Lending is one of the oldest and most profitable business ventures on earth. By lending money at even a single interest rate, it is quite possible to double one's capital under three years. The banks know this secret and it is why lending is the life wire of mainstream banking activities.

But as profitable as the lending business could be, it also comes with great risks - the greatest of it being the tendency to lose money to delinquent borrowers. And it is why any serious-minded lender would never take for granted sound recovery strategies. In this article, I share with you some srategies for recovering bad loans.

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1. Dialogue

In the quest of recovering bad loans, a dialogue can be referred to as a communication between the borrower and the lender with the aim to resolve the problematic loans. It is expected for the borrower to make excuses in this dialogue, but the lender must be firm and reasonable enough to make compromises where necessary.

During the dialogue, the lender should use the opportunity to diagnose the problem, determine if the loan is in overdue because of the lack of the willingness or the lack of the capacity to repay or a combination of both.

2. Loan Restructuring

It is the outcome of the dialogue process that will determine the next action that will be taken next by the lender. If the lender, for instance, finds that the borrower is willing to pay but do not have sufficient capacity to repay then the loan should be restructured. This will make it easier for the borrower to meet up his or her obligations.

A good advantage of loan restructuring is that it not only makes life comfortable for the borrower, the lender is able to secure the loyalty of the borrower for future business deals.

3. Following Up On The Guarantor

In the event where the loan has a guarantor, which is an integral part of responsible lending, the lender is expected to reach out to the guarantor to make repayment as stated in the credit contract, of one exists.

The advantage of reaching out to the guarantor is that the lender is able to get an extra hand to help with the repayment. And in most cases, the borrower is put under pressure by involving the guarantor with the repayment.

4. Group Visit

Depending on the category of the loan and the reason for overdue, a group visit is a good recovery strategy. A group visit can be done to either the borrower's workplace or home, depending on the terms and conditions of the loan. However, the lender must be very careful not to attract the wrath of the law in carrying out the group visit.

5. Confiscation

Confiscation is usually the last resort in the recovery process. The lender is forced to execute a confiscation of the borrower's assets only in the event that all recovery efforts have been exhausted or when it has been established that the borrower lacks the willingness to pay back.

Confiscation is a coercive strategy that, in most cases, helps to recover bad loans. However, the lender risks damaging his reputation and destroying business bridges for each confiscation that is executed. Nevertheless, it is a necessary evil for a nice man does not make a good lender.