Credit policy should spell out the techniques of analysis used in the process of credit proposal. It is important to understand the borrower his business and performance. The fundamental point in avoiding default is the risk to know the applicant. It is generally said that seeds of fraud are sown at the time of opening an account. This aphorism can also hold good in credit that seeds of bad loans are sown at the time of allowing credit. A normal bad loan can be cured but there may be no remedy for abinitio bad selection of borrowers. It does not just know the name and address but besides the bio-data of the borrower, the bank should know the personal character, business character, dealings, reputation in the market, meeting his obligation, credibility, honesty, and trustworthiness. The second point is capital which refers to the ability to pay, his credit worthiness, resources, and wealth. The third point is capacity which means the management efficiency, legal status, and sustainability of the business. The fourth point is the collateral which is the fallback available to the bank in case a loan is approved. That collateral offered is marketable, stable in price, transferable, and free of any prior charge or encumbrance. The fifth point in the process of analysis is the conditions in which the business operates. Conditions also refer to the environment, the industry, the market for the product/ services, the production process, distribution and marketing, the business cycle, market demand, and market acceptability/ response to the business of the applicant. It may be summarized as;

1. Identify the strong points about the business of the borrower.
2. Ascertain the weaknesses in the business of the borrower.
3. Identify the success factors in the business of the borrower.
4. Market reputation and creditworthiness of the borrower.
5. Business health and growth prospect of the business of the borrower.