Question

Scenario:

John is a small business owner who wants to expand his operations by purchasing new equipment for his manufacturing company. He approached a bank to apply for a loan to finance the equipment purchase.

4.1 The loan officer at the bank evaluated John's creditworthiness based on the 7 C's but experienced technical difficulties and mixed the findings of four of the 7 C's. Assist the loan officer by reading the following findings and indicate which C is displayed.

4.1.1 John has been in business for over a decade and has built a good reputation in the industry.
4.1.2 John demonstrates that his business generates sufficient cash flow to cover the loan payments while maintaining adequate liquidity for day-to-day operations.
4.1.3 John has invested a significant amount of his own capital into the business and also provides documentation of his personal and business assets if needed.
4.1.4 John's credit score is in good standing, indicating a low risk of default on the loan.
(4 x 1 = 4)

Answer 1

The 7 C's of credit are Character, Capacity, Capital, Collateral, Conditions, Credit History, and Confidence. Based on the findings provided, here are the respective C's displayed:

4.1.1 - **Character**: This indicates John's reputation and reliability in the industry due to his long-standing business.

4.1.2 - **Capacity**: This demonstrates John’s ability to generate sufficient cash flow to meet loan payments while maintaining liquidity.

4.1.3 - **Capital**: This shows John's investment in the business and his personal and business assets, which reflect his financial commitment.

4.1.4 - **Credit History**: This indicates John's credit score, suggesting a low risk of default and providing insight into his past borrowing behavior.

In summary:
- 4.1.1: Character
- 4.1.2: Capacity
- 4.1.3: Capital
- 4.1.4: Credit History