A money lender, who more often
than not is a banker, needs certain information on which to base
a loan decision. This information will be furnished in part by
the borrower, and rest will come from the bank's own credit files
and other outside sources. This information is related to what
credit people call the "C's" of credit. They are: Character,
Capacity, Capital, Collateral, circumstances, and Coverage.
Character:
To a banker, charater means two
things:
1. That the borrower will do everything in his power to conserve
his business assets ensuring repayment of his loan. He will manage
his business to the best of his abilities. He will not squander
his own, the bank's or any other funds.
2. The borrower is a man of his word. When he says he will repay
a loan promptly, he means just that. If he does not keep his promise,
he will have made every possible effort to do so.
Capacity:
The management skills shown by the
small businessman in using his investment and enlarging it are
important business assets. However, for those who are just starting
on a business career or entering a new field of business, past
performance, no matter how successful, does not guarantee expertise
in directing the activities in the new endevour.
Capital:
The small businessman's investment
in his own business is evidence of his faith in its future. He
himself must furnish the management and most of the capital until
others have enough confidence in his business to be willing to
invest in it.
Collateral:
Businessmen who have a high credit
standing do much of their borrowing on an unsecured basis. Others
must back up their credit needs with collateral. This is very
likely with a person going into a new business. If he owns a house
or other improved real estate, life insurance policies with cash
surrender value, or marketable securities, he may be able to use
them as collateral. Before borrowing on these terms, however,
he should consider the consequences if he should be forced to
withdraw from the business before it becomes firmly established.
A small businessman who quits prematurely usually does so at a
loss.
Circumstances:
Some factors over which the small
businessman has no control may have a bearing on the granting
of a bank loan or its repayment. These include Seasonal character
of the business, Long-run business chances, Level of community
business activity, Competitive position of firm and Nature of
the product.
Coverage:
Proper insurance coverage is extremely important. Small businessmen
are subject to possible business loses from many causes. These
may include: Death of an owner, partner, or principle stockholder,
Physical damage or interruption of operations as the result of
fire, explosion, flood, or other "Acts of God"; Theft,
embezzlement or other acts of dishonesty by owners, employees
or others; Public liability not covered by workman's compensation
insurance.
A small businessman just beginning
may not be able to insure his company as fully as the owner of
an established business, but he should recognize the need. A going
concern has little excuse for neglecting to establish and maintain
adequate insurance protection against basic risks. For additional
advise, see sn insurance broker, agent or company representative.
