EVALUATING LOAN

APPLICATION
There are 5cs for evaluating loan
application such as
1)CAPACITY
2)COLLATERAL
3)CAPITAL
4)CONDITION
5) CHARACTER

CAPACITY
Capacityrefers to your ability to
meet the loan payments
The lender wants to whethere the
amount exactly will be repayable by
the customer
For example, if you have a history of
not paying back loans then it
becomes more difficult to obtain
additional loans.

CAPITAL
Capitalis the money invested in the
business and it is the indicator of risk
Lenders will generally consider the
company's debt-to-equity ratio
A high debt-to-equity ratio also
indicates that the company already
has a high level of loans and could be
a higher financial risk.

COLLATERAL
Collateralis a form of security for the
lender.
Banks usually require collateral as a type
of insurance in case you cannot repay the
loan.
The loan agreement should carefully
specify all items serving as
collateral.Equipment, buildings, accounts
receivable, and inventory are all potential
forms of collateral.

CONDITIONS
Conditionsrefer to the intended
purpose of the loan.
for example working capital
Conditions also include the national,
industry level, and local economic
situation.

CHARACTER
Characteris the obligation that a
borrower feels to repay the loan
there is not an accurate way to judge
character.
The lender will investigate your
payment history and educational
background for lending.

CREDIT ANALYSIS
Credit analysisis the method by
which one calculates the
creditworthiness of a business or
organization. In other words, It is the
evaluation of the ability of a
company to honor its financial
obligations.

Decision Process for Credit

Evaluation
Credit managers rely heavily upon
external data sources to guide them
in the credit decision process.
To approve or reject a credit
request is a delicate task.