Question
State whether you agree of disagree and why with capital being the most important C out of the 5 c's of credit The 5 C's
State whether you agree of disagree and why with capital being the most important C out of the 5 c's of credit
The 5 C's of Credit
In terms of banking, the Five C's of Credit are what govern credit analysis through lenders. According to an article by Tracy Shepard for Live Oak Bank, "an analysis is used to determine the risk associated with making a loan." These Five C's of credit include: character, capacity, condition, capital, and collateral. Knowing these "Five C's," you can have a better understanding of the application process for a loan.
Character plays an importance in banking, as it shows the lenders the honesty and integrity of borrowers. Lenders in these situations need to be confident that the applicant is qualified to successfully operate.
Capacity, also referred to as cash flow, is when the lender wants to know if your business can repay the loan you were given. Business expenses and debts should be supported by a sufficient amount of cash flow. Capacity can be determined by evaluation of the borrower's payment history.
Condition is the understanding a lender should have about a business' conditions within the industry, as well as the ever changing economy. In order to ensure a successful loan, the lender may also want to know how the loan proceeds with be used.
Capital is the personal investment you plan to put into your business. Injecting capital shows that you are willing to risk the fate of your business.
Collateral's significance varies depending on the type of loans, as some borrowers use a guarantor as a secondary source of repayment. Around the time of loan application, the lender will review the value of the assets of the business' and personal contribution.
In my personal opinion, I believe that the most important C is capital. Investing capital really shows a lender how serious you are about the future of your business. Sure, you don't have to invest anything, but doing so looks better for your success.
I don't believe I would add or eliminate any of the "Five C's," as they all play an importance to the lending of a loan.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started