When Things Go Bad – A Practical and Personal Perspective

Introduction
With the exception of the recent foray into mortgage lending, banks, prior to making loans, historically performed a ritual called credit analysis to determine the borrower’s qualifications and eligibility for a loan. The criteria are best summarized by the “5 C’s of Credit,” which are described as follows:

• The most critical is capacity or the ability to repay the loan. The primary source of repayment is cash and the bank will consider the cash flow from the business, the timing of repayment and the probability of successful repayment from this source or other possible sources.
• Banks also assess how much capital, or money the borrower has invested in the business. This is money personally invested in the business from personal assets and which is at risk

This is only an excerpt of When Things Go Bad – A Practical and Personal Perspective

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