HOW YOU RATE AS A BORROWER.
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:
- 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.
- 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.
