Question

2. Please identify which of the basic Cs of lending character, capacity, cash, collateral, conditions, and control applies to each of the loan factors listed here: Use the Table below with the 6 C's as the column headers to place each of the following under their correct column: Insurance coverage Asset liquidation Competitive climate for customer's product Inflation outlook Credit rating Adequate documentation Corporate resolution Changes in accounting standards Liquid reserves Written loan policy Asset specialization Coverage ratios Driver's license Purpose of loan Expected market share Laws and regulations that apply to the making of loans Economists' forecasts Wages in the labor market Business cycle Changes in technology Performance of comparable firms Obsolescence Guarantees/warranties Liens Expense controls Management quality Inventory turnover Leverage Projected cash flow History of firm Experience of other lenders Customer identity Social Security card Payment record Price-earnings ratio Partnership agreement Industry outlook Accounts receivable turnover Future financing needs Accounts payable turnover Character Capacity Cash C ollateral Conditions Control

Answer 1

Character-

Qualities of the borrower that lenders look in them to judge their ability to repay the loan. It can be education, business background, and familiarity with your industry

CREDIT RATING, DRIVER LICENSE, GUARANTEE & WARRANTIES, EXPERIENCE WITH OTHER LENDERS, SOCIAL SECURITY CARD, MANAGEMENT QUALITY, HISTORY OF FIRM, CUSTOMER IDENTITY, PURPOSE OF LOAN, PAYMENT RECORD, PARTNERSHIP AGREEMENT

Capacity-

By comparing past history of debt repayment as well as current debt lenders will judge your ability to repay the loan

Cash-

Lender will require borrowers to put capital to secure the loan, Lenders want borrowers to also invest money so that they alone don’t bear the risk

LIQUIDITY RESERVES, EXPENSE CONTROL, INVENTORY TURNOVER, PROJECTED CASH FLOW, PE RATIO, COVERAGE RATIOS, ACCOUNT RECEIVABLE TURNOVER, ACCOUNT PAYABLE TURNOVER, CHANGE IN ACCOUNTING STANDARD

Collateral-

It depends on the quality of assets against which loan is taken. So they want some valuable assets like land, property as collateral so that they consider you serious for paying back the loan

FUTURE FINANCING NEEDS, ASSET SPECIALIZATION, ASSET LIQUIDATION, INSURANCE COVERAGE, LIENS, LEVERAGE, OBSOLESCENCE

Conditions-

It includes economy, industry, company condition. The competition and the position borrower is facing in the market

Competitive climate for the product, expected market share, economic forecasts, business cycle performance of comparable firms, Industry outlook, corporate resolution, Inflation-outlook, wages in the labour market, CHANGES IN TECHNOLOGY

Control-

Loan meet the policy, How it will be affected if the law changes.

ADEQUATE DOCUMENTATION, WRITTEN LOAN POLICY, LAWS AND REGULATION THAT APPLY WHILE TAKING LOAN,