Question

Describe the “4Cs” framework for credit analysis.

Answer 1

1) Character: First step is to assess the characted of the borrower. In doing this one must consider following

- Has the person declared bankrupcy in past

-Does person has good credit score

-What is level of his education

-Stability of his residence

2) Capacity : One should consider whether he will be able to repay the loan. For this one can collect following data

- Income tax return

-Salary slip and in case of profession bank statements

- Property as security

3) Capital :In case of business loan, one should check whether company has proper capital such as debtires, inventory, fixed asset which can be taken on charge.

4) Condition: One should see the surrounding conditions . Analysing industry in which business operates will enable us to understand whether the business will grow or not. Thus we can assess his repayment capacity.