6 C's of Credit
Introduction
The “6 C’s of credit” or “6C 's of banking" are a common reference to the major elements of a banker’s analysis when considering a request for a loan.
Is the Borrower Creditworthy?
The question that must be dealt with before any other is whether or not the customer can service the loan –that is, pay out the credit when due, with a comfortable margin for error.
6 C’s of Credit
1. Character
2. Capacity
3. Cash
4. Collateral
5. Conditions
6. Control
Character
The first thing that loan officers look for when reviewing a proposal is evidence of your trustworthiness.
Your loan application can be rejected without even reviewing your proposed business idea if loan officers find any evidence in your background indicating lack of integrity.
Responsibility, truthfulness, serious purpose, and serious intention to repay all monies owed make up what a loan officer calls character.
If the loan officer feels the customer is insincere in promising to use borrowed funds as planned and in repaying as agreed, the loan should not be made, for it will almost certainly become a problem credit. Capacity
If the bank feels that confident about your personal background and your ability to make good judgments when making business decisions, the next step for them is to determine the capability of your business to turn up a profit. They will now ask: "What is your ability to repay the loan? How are the loan proceeds to be used? How will they be repaid?"
The loan officer must be sure that the customer has the authority to request a loan and the legal standing to sign a binding loan agreement. This customer characteristic is known as the capacity to borrow money.
For example, in most areas a minor (e.g., under age 18 or 21) cannot legally be held responsible for a credit agreement; thus, the lender would have great difficulty collecting on such a loan.
Similarly, the loan officer must be sure that the representative from a corporation
The “6 C’s of credit” or “6C 's of banking" are a common reference to the major elements of a banker’s analysis when considering a request for a loan.
Is the Borrower Creditworthy?
The question that must be dealt with before any other is whether or not the customer can service the loan –that is, pay out the credit when due, with a comfortable margin for error.
6 C’s of Credit
1. Character
2. Capacity
3. Cash
4. Collateral
5. Conditions
6. Control
Character
The first thing that loan officers look for when reviewing a proposal is evidence of your trustworthiness.
Your loan application can be rejected without even reviewing your proposed business idea if loan officers find any evidence in your background indicating lack of integrity.
Responsibility, truthfulness, serious purpose, and serious intention to repay all monies owed make up what a loan officer calls character.
If the loan officer feels the customer is insincere in promising to use borrowed funds as planned and in repaying as agreed, the loan should not be made, for it will almost certainly become a problem credit. Capacity
If the bank feels that confident about your personal background and your ability to make good judgments when making business decisions, the next step for them is to determine the capability of your business to turn up a profit. They will now ask: "What is your ability to repay the loan? How are the loan proceeds to be used? How will they be repaid?"
The loan officer must be sure that the customer has the authority to request a loan and the legal standing to sign a binding loan agreement. This customer characteristic is known as the capacity to borrow money.
For example, in most areas a minor (e.g., under age 18 or 21) cannot legally be held responsible for a credit agreement; thus, the lender would have great difficulty collecting on such a loan.
Similarly, the loan officer must be sure that the representative from a corporation