C's of Credit
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Can you please help me with the following:
All of the "C's" are important to establish creditworthiness. The challenge is to determine which of the "five C's" is typically most important to those that lend money (e.g. individual investors, commercial banks, venture capitalists, the U.S. Small Business Administration) to entrepreneurs.
Of the "five C's," which do you suppose is the most important to lenders who lend money to entrepreneurs? Please provide your reasoning for your selection.
The five "C"s are described at the following link:
http://books.google.com/books?id=8m6PEcgFe6MC&pg=PA216&lpg=PA216&dq=when+an+entrepreneur+decides+to+seek+external+financing,+she+must+be+able+to+prove+credit+worthiness+to+potential+providers+of+funds&source=bl&ots=CoJnNzEqDt&sig=KgBLySKjSYkMito7wpuVk2e2pI8&hl=en&sa=X&ei=aGlJU_m2KaLbyQHfxYHoBw&ved=0CCkQ6AEwAA#v=onepage&q=when%20an%20entrepreneur%20decides%20to%20seek%20external%20financing%2C%20she%20must%20be%20able%20to%20prove%20credit%20worthiness%20to%20potential%20providers%20of%20funds&f=true
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Solution Summary
How to analyze and determine the important criteria for issuing and guaranteeing loan repayment
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On some level this is a subjective question in terms of considering what is MOST important in this case. So let's step back and identify the credit criteria for ANY loan. Referring to Wikipedia for a definition of the credit criteria, we determine the following:
Lenders, especially bankers, use a formula known as the six C's of credit when evaluating a credit application. Understanding them will help you make your applications as attractive as possible.
Character. This is essentially a summary of the individual. Creditors look for people who appear to be trustworthy and reliable, and who are willing and able to meet their financial obligations.
Capacity. This is the individual's ability to repay the loan; it is based on present and anticipated earnings balanced against existing debts.
Collateral. The item pledged by the borrower as security for the loan, which may be real state, stocks, savings, a mortgage, etc.
Conditions. Both regulatory and economic conditions are considered. ...
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