Whilst there are many rules on this, a typical methodology is called 4Cs of Credit Worthy Assessment.
Capacity - How is the credit going to be paid. What are the sources of inflow to pay the credit. If it is profit, then coverage ratio, etc. Collateral - What type of security is given? Value of security. What is credit amount as a % to value of security, etc Covenants - How well the credit agreement (loan agreement) is drafted, what are the conditions, negative and positive. Is the borrower allowed to remove funds from business without fully repaying the loan, ec. Character - What type of organization? Ltd company, partnership. What is the credit history? How good is management team of the company, etc
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