Risk management in business loans has been a recurring theme in IELTS Writing Task 2, appearing approximately 3-4 times annually in recent years. Based on analysis of past exam papers, questions about financial management and business risks are increasingly common, particularly in Asian test centers. Let’s examine one frequently encountered question type on this topic.
Just as importance of credit history for loans plays a crucial role in financial decision-making, understanding risk management in business lending is essential for both lenders and borrowers.
Question Analysis
Some people believe that banks should be more careful in evaluating business loan applications to reduce financial risks. Others argue this would limit business opportunities and economic growth. Discuss both views and give your opinion.
Key Requirements:
- Discuss two contrasting views
- Provide a balanced analysis
- Include personal opinion
- Support arguments with examples
Sample Essay 1 (Band 8.5)
In the modern financial landscape, where how fintech platforms change financial management, the debate over bank lending practices remains crucial. While some advocate for stricter loan evaluation processes, others believe this could hamper economic development. In my opinion, while thorough risk assessment is essential, banks must find a balanced approach that promotes both stability and growth.
Proponents of stringent evaluation procedures argue that this approach helps prevent financial crises. The 2008 global financial crisis, triggered partly by irresponsible lending, demonstrates how inadequate risk assessment can devastate economies. Moreover, careful evaluation protects both banks and borrowers from potential defaults and bankruptcy.
However, those opposing strict evaluation processes contend that excessive caution could stifle entrepreneurship and innovation. Small businesses, particularly in emerging economies like Vietnam and Indonesia, often struggle to obtain necessary funding due to rigid lending criteria. This limitation can prevent potentially successful ventures from launching, thereby restricting job creation and economic growth.
Balanced approach to loan risk management showing both protection and growth
I believe the optimal solution lies in implementing smart risk management systems while maintaining flexibility. Banks can utilize advanced analytics and AI to evaluate applications more efficiently, similar to how role of central banks in financial crisis management has evolved. This approach would allow for thorough risk assessment without creating unnecessary barriers for promising business ventures.
Sample Essay 2 (Band 6.5)
Many people have different opinions about how banks should check business loans. Some think banks need to be very careful, but others say this is bad for business growth. I will discuss both sides and give my opinion.
People who want strict checking say it is important for safety. For example, when banks give loans too easily, businesses might not be able to pay back the money. This can cause problems for the bank and the economy. Also, careful checking helps protect people’s savings in the bank.
However, other people think too much checking is bad. When banks are too strict, many small businesses cannot get loans. This means they cannot start their business or make it bigger. In countries like India and China, this is a big problem for new business owners.
I think banks should find a middle way. They should check loans carefully but also try to help good businesses get money. Maybe banks can use new technology to check loans faster and better. This way, they can be safe but also help the economy grow.
Key Vocabulary
- Risk assessment (n) /rɪsk əˈsesmənt/ – The process of evaluating potential risks
- Stringent (adj) /ˈstrɪndʒənt/ – Strict, precise, and exacting
- Entrepreneurship (n) /ˌɑːntrəprəˈnɜːʃɪp/ – The activity of setting up businesses
- Collateral (n) /kəˈlætərəl/ – Something pledged as security for repayment of a loan
- Default (n) /dɪˈfɔːlt/ – Failure to fulfill an obligation, especially to repay a loan
Conclusion
The topic of risk management in business loans remains relevant for IELTS candidates. Similar questions might focus on:
- Government support for business loans
- Digital lending platforms
- Small business financing challenges
Practice writing your own essay on this topic and share it in the comments for feedback from fellow learners.
