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As a lender, you need to exercise due diligence when lending to customers. A due diligence review ensures that the loan does not involve legal risks that you are not aware of that could damage you or your business. Exercising due diligence will help you know your customer’s requirements, the credit risks, and determine their suitability.

Know Your Customers Requirements

Identity theft is a very prominent crime. Especially when it comes to obtaining loans. As a lender, it is crucial you make sure your customer meets all the requirements for ID verification. The minimum requirements to open a financial account include: name, date of birth, address, and identification number. Verifying the account holder, within a reasonable time, with documents and background checks will help you make sure they are who they say they are and they qualify for the loan they are requesting.

Credit Risks

Credit risk individuals are those you are more likely to default on their loans; those with no credit history, an unstable job, or existing loans. When they default, it hurts your business. It is important to determine an individual’s credit worthiness to determine whether they are worth the risk. If they are not, there is no harm in denying them a line of credit. Customers should be notified with a letter that states why they are being denied a loan. This will help them understand your reasons and motivate them to make changes for future loan applications.

Determine Suitability

A broker-deal with a customer must have reasonable grounds when recommending that they are suitable for a loan. A complete review of the client’s financial situation and needs will help you in determining the risk involved with the purchase, sale, or exchange of goods. As a lender, you must establish a customer profile which includes their financial situation and personality traits. From there you can determine whether you feel they are suitable for a loan and if you can trust that they will pay you back. You will save yourself heartache if you decline a high-risk loan rather than gamble losing your investments.


If used correctly, lending to customers is an opportunity to grow your business. Many businesses and financial institutions have made their profit from lending programs. It is important to exercise due diligence each time you consider lending to a customer so you can avoid high-risk individuals that put your business at risk.

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