Lending here means lending for interest and not profit sharing (risk-sharing).

What is the lending for? Consumption or production?

If for consumption, skip to the next step. If for production, producing what? What industry? What product or service? How risky is it in the current situation? What things can happen that will cause the product to fail to turn enough revenue to pay back the loan?

If it’s for consumption or if the production project failed, can the borrower pay the loan back? What assets or cash flow does he have? What things can happen to make the cash flow dries up before you collect the payment? What things can happen to make the assets lose value before you get the asset and can sell it (beware illiquid assets)?

If the borrower defaults, will he just bail out or is he the type to uphold his honor and own up to his mistake? Will he try to repay the loan?

How do we make sure that the answers we get to the previous questions are honest and true?