In: Finance
Please advise the following people what is the best source of financing. Also, explain the strengths and weaknesses of the borrower’s ability to get loan based on 5 C’s of credit:
-Mary has been in the construction business for 3 years. The business has averaged $120,000 in profits each year. She is seeking $250,000 to purchase new equipment. Her credit score is 650. She also has a house valued at $350,000 with outstanding mortgage of $200,000. Mary over 20 years of experience in the business.
-Mark is seeking $10,000 to start his graphic design business. His credit score is 630 and he has no personal assets.
Mary has a successful business track record with average $1,20,000 of annual profits with over 20 years of work experience in the business. Her credit score is 650 and such credit score is considered low.
Mary should go for secured loan from bank with house put as collateral. Getting such loan shouldn’t be difficult given her successful business record, purpose of loan which is buying equipment and house as collateral.
5 Cs of credit /ability to identify credit worthiness of Mary to repay back the loan
Mark has a credit score of 630 and such score below 650 is considered poor. Also he doesn’t have any personal assets to be used as collateral and thus common sources of finance like secured loans from banks, government grants etc. won’t be possible.
Mark should try for borrowings from friends/family. If that’s not possible, Mark should go for working capital loan from a bank. Due to poor credit score and no collateral, bank might charge a high rate of interest.
5 Cs of credit /ability to identify credit worthiness of Mark to repay back the loan