Question

FINA 310

Unit 5

Assignment Details

There are many circumstances in which the principles of the 5 Cs of credit can be applied.

• Utilizing the company that you work for or a company that you are familiar with, name one of the 5 Cs of credit, and discuss how it would come into play in the workplace.
• How can you use this C in situations that occur in your personal life?

Answer 1

5 Cs of Credit

Actually we use 5 Cs of credit to know how they will repay the debt. These include many condition,characters,capital like that and by these measure we can identify the ability and how likely we repay the debt.

The 5 Cs of credits are

1. Character - This measure is used to know how reliable the borrower and identify whether he is trustworthy or not. This can be identify by looking into credit history, bankcruptacy and credit details etc.

2. Capacity - This is the measurement of the ability of the borrower to repay the debt. This is the measurement of the potential to repay the debt obligation.

3. Capital - this is the way which use the capital as the measure to identify the capacity of the borrower.

4. Condition - Lenders should always be alert about the condition of the market and the enviornment. And this also looks that how the borrower using the funds.

5. Collateral - The personal and business assets can be pledged so that for getting loans there is no need of such collaterals.

These are the 5 Cs of credit. So now lets discuss about one of the 5Cs and how it can be use in workplace and personal life.

So we can discuss about Capacity because it considered as one of the important C in credit.

Capacity is our business ability to payback the loan. This is about how much cash is available with us for using the loan. We should ensure that our business have the capacity to repay the loan. Lenders always looks that did the borrower have adequate cash to repay their debt. This can be identify by looking into cashflow statement, Bank statements, debt to service ratio etc. So only by looking into our capacity they decide how much credit they can offer for us. The amount of loan is depended on the capacity of repay. This is why the capacity is very needful and play a significant role in credit generation. Sp in our workplace we should always ensure that we have the capacity. For that purpose we should look into our cashflow and make sure that our cashflow statement shows a good amount of cash and cash equivalents.

In our personal life also we should always ensure that we have the capacity to pay obligations at the right time. So we must have possess enough cash within our hand to make these payments at the right time. This will help us to make a good character also. By paying debt at the right time we become trustworthy for others and it will boost our character. So for that purpose we only have to make our capacity higher to meet all of our needs in the perfect time.

Thank You..