A self-employed client applies for a P500,000 small business loan. His monthly income fluctuates around P50,000, but his debt payments (including credit card and car loan) total P20,000 per month. He has no collateral but offers a co-maker. How would you assess his repayment capacity?

Situation

As a credit evaluation intern at a cooperative, I assessed a loan application from a freelance graphic designer earning P50,000 monthly, with existing loan payments of P20,000, requesting P500,000 for new equipment.

Task

I had to determine if the applicant could afford the loan and recommend approval or reasonable adjustments to my supervisor.

Action

I computed the debt-to-income ratio: existing P20,000 plus a proposed monthly amortization of P40,000 (based on a 12-month term) would total P60,000, a 120% DTI. I interviewed the client to verify income stability and seasonal peaks. I evaluated the co-maker's finances, which added moderate strength. I proposed a counter-offer of a P250,000 loan over 18 months, reducing amortization to P20,000, for a total debt of P40,000, an 80% DTI. I also required weekly payment monitoring and a signed acknowledgement of the terms.

Result

The revised loan was approved, and the client made all payments on time, generating P45,000 in interest income for the cooperative. My supervisor commended my practical yet prudent analysis.