Question

Discuss the 3 "Cs" - Capability, Credit, and Collateral and let us know which you feel like is most important to the qualification process?

Answer 1

Capability

Lenders must be sure that the borrower has the ability to repay the loan based on the proposed amount and terms. For business-loan applications, the financial institution reviews the company's past cash flow statements to determine how much income is expected from operations. Individual borrowers provide detailed information about the income they earn as well as the stability of their employment. Capacity is also determined by analyzing the number and amount of debt obligations the borrower currently has outstanding, compared to the amount of income or revenue expected each month.

Credit

Credit history is a record of a consumer's ability to repay debts and demonstrated responsibility in repaying debts. This information is all contained on a consumer's credit report. A consumer's credit history includes the following:

• Number and types of credit accounts
• How long each account has been open
• Amounts owed
• Amount of available credit used
• Whether bills are paid on time
• Number of recent credit inquiries

A consumer's credit history also contains information regarding whether the consumer has any bankruptcies, liens, judgments, or collections.

Collateral

Personal assets pledged by a borrower as security for a loan are known as collateral. Business borrowers may use equipment or accounts receivable to secure a loan, while individual debtors often pledge savings, a vehicle, or a home as collateral. Applications for a secured loan are looked upon more favorably than those for an unsecured loan because the lender can collect the asset should the borrower stop making loan payments. Banks measure collateral quantitatively by its value and qualitatively by its perceived ease of liquidation.

I feel credibility and capability is most important for the qualification process because if an individual has good capability and credibility it's civil score will be good so it can easily get a loan from the institution even if he doesn't have any property for the colletral.