5 C's of creditworthiness of borrower?

"The Five Cs and an IR of Credit."
These guidelines are as follows:
Character. This re-fers to the borrower's integrity and willingness to repay the financial obligation. Does the borrower have a bad credit history? Has the borrower declared bankruptcy in the past? Has the borrower had a failed enterprise in the past? Has the borrower failed to meet family obligations? A "yes" answer to any of these questions could place the borrower's character in doubt.
Capacity. This addresses the borrower's cash flow and ability to repay the debt from ongoing business operations. Unforeseen business difficulties will always arise. Accordingly, the use of the borrowed funds must generate sufficient funds during the period of the loan to cover these contingencies, and still have a generous amount left over in order to service any remaining debts.
Capital. This is the borrower's financial net worth. A significantly positive net worth has the potential to offset insufficient cash flows, because financiers perceive the borrower still has more than adequate means to repay the loan.
Collateral. This refers to any property owned by the borrower that can be pledged for security. If the property has been previously pledged against another loan, financiers would probably not consider it available to be pledged again until the previous loan has been paid off.
Conditions. These refer to economic, industrial and company-specific prospects and events that may occur during the period of the loan that could have a significant effect on your company. These might include rising raw material prices, an employee strike, increasing interest rates, etc.
Inventories. In addition, bankers will look at the company's inventories. Don't assume a large inventory represents collateral that can be readily pledged against a loan. Bankers realize that if a company defaults on a loan, the financiers would be lucky to recoup five cents on the dollar from the pledged inventory. Instead, bankers will look at how rapidly you rotate your inventory, and the faster the better.
If you have enough inventory on hand for the next year, you are negatively impacting cash flow. Such a condition probably indicates people are not buying your product, another reason for worry. However, if you are "turning" your inventories every month, your financiers should be very happy.
Receivables. How well are you doing at collecting your debts? If you give your customers 30-day terms, are they paying on time? If your receivables are averaging 60 days, it will cost you both money and the confidence of your bankers.

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