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The 4Cs You Should Consider in Lending Money by gandhibaba

View this thread on steempeak.com
· @gandhibaba ·
$14.33
The 4Cs You Should Consider in Lending Money
![woman4783150_1280.jpg](https://files.peakd.com/file/peakd-hive/gandhibaba/ajJqwT87-woman-4783150_1280.jpg)


Lending is nearly as old as man himself. Once man became a settler, kick starting a new civilization built around the emergence of cities and trade, lending became a necessity. In some societies, lending is done mainly for altruistic reasons. 

Nevertheless, lending is a big business in modern societies where banks create new money by lending out money to interested borrowers. Since lending is a very risky venture, over the years financial institutions have developed robust guidelines that shape their lending decisions. In this article, I write about 4Cs that are very important in the business of lending. 




#### 1. Character

Character concerns the attitudes and disposition of the borrower. It consists of the psychological being of the borrower from the perception of the lender. Unlike some other important considerations, it could be very difficult to identify a potential borrower with a bad character. This is because human beings are well known for concealing their true characters.

Therefore, it is the duty of the lender or its agents to subjectively but almost accurately assess the character of the borrower and determine whether he or she has willingness to pay back or not. 

#### 2. Collateral

Put simply, collateral refers to the securities of a loan. Usually, collaterals are items of precious value to the borrower, which are approved by law, and to which the borrower is willing to forfeit to the lender in the event of default. 

The convention with collaterals is that its total sum should be greater or equal to the loan amount. A breach of this simple rule could result to default because the borrower may in the future believe that he or she has little or nothing to lose in the event of default. 

The truth is that a loan is more secured if the collateral value far exceeds the loan amount. 

#### 3. Credit Score

Credit score refers to the credit points of the borrower. A positive credit score shows that the borrower is creditworthy while a negative credit score shows that a borrower is not creditworthy. A simple way to determine credit score is to analyze the credit history of the borrower and identify cases of default and prompt payment. 

Credit score is one of the most important of the 4Cs because borrowers with horrible credit scores are highly likely to repeat the credit history. In some extreme cases, the loan could become a bad debt. 

#### 4. Capacity

Lastly, capacity refers to the ability of the borrower to pay back the loan. Capacity can be determined by looking at the balance sheet of the borrower and ascertaining what he or she can conveniently pay back after all expenses have been considered. 

Capacity to pay back is so important that without it there will be serious problems with the repayment of the loan. So, this is not a factor to be ignored if the lender cares about recovering his money. 


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<sub>Image sourced from Pixabay</center>
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vote details (407)
@gbenga ·
$0.82
Borrowing is a completely different ball game. I have seen people get loans that put them into trouble, some even go to the extent of collecting from financial institutions that are known to borrow for as high as 40% for a trading business that fetches 41% after selling or flipping their goods. The painful thing is they might have to pay weekly which is very bad and in days they cannot pay, the borrowers lock them up.

There is something called the borrowing skills and that skill is learnt by talking to a financial advisor or getting into a loan debt once or twice.

1st, if your creditor will be very fast to report a delayed loan payment to the credit bureau then the creditor has a bad character ( the creditor might be an institution.

2nd if the collateral is not 5 time lower than the profit to be made within the period of borrowing, then it is not worth it. Banks in my country started giving loan as low as 1% so if you are going to the bank or any financial institution to get a loan, go with an accountant (if you can afford one) so your calculations are correct.

3rd  in most cases, borrowers don't decide to delay their payment, because everyone wants a good credit score but things do do not go as it always seem. So as not to get your credit score low, every financial institution should be willing to give an extension for late loan payment. If the financial institution won't give extension on loans, then they are not worth doing business with them. Don't forget you are not at their mercy, you are a customer and an investment for the institution so they should listen to your terms.

4th, i have always say this to people that only go for loans you can pay. Go for loans that your solid asset can pay for 10 times. If your are worth $10,000 in solid asset and property,  never go above $1000 in liquid loan since why you need a loan is because you need liquid cash urgently, so if you are finding it difficult to pay, disposing a $1000 solid property can cover up for the loan.


Thanks for sharing this post, i must say it is something that everyone should read before applying for a loan.
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@crypto.piotr ·
brilliant comment buddy
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@gbenga ·
Thanks friend.
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@gandhibaba ·
Hello @gbenga thanks for your excellent comments to this post. Your comments are so detailed and lucid that they can easily serve as a rejoinder to the write up. I particularly love your 4th point, not borrowing more than 1/10 of your solid or fixed assets. It is a timeless advice which one should not ignore if getting out of trouble is a priority.
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@oluwatobiloba ·
Sometimes even after considering the credit capacity of your lenders to effectively pay back, circumstances changes situation and they might just not have the capacity to pay back any longer.
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@gandhibaba ·
You're right. But when that time comes, it is the willingness of the borrower to pay that matters. The loan can then be rescheduled.
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@futurekr ·
Lending and borrowing will never cease to exist in the history of man but whenever we lend the options you shared has to be carefully considered.
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@crypto.piotr ·
Dear @gandhibaba

One of those posts, which surely are worth checking out and reading through. Thanks for solid read.

Lending is indeed very old. Most likely it's way older than existance of cash. 

> Since lending is a very risky venture, over the years financial institutions have developed robust guidelines that shape their lending decisions.

And that's how banks created new type of economy. Build on debt.

Upvoted already :)
Yours, Piotr
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@gandhibaba ·
I admire your manner of engagement, far higher than anyone I know or have met on Steemit. Thanks for stopping by and for always reading through.
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@ajewa ·
A lot of people say that in other to expand in business, one can use other people's money and one of the ways of using other people's money is through loans but getting loans for the wrong reason and from the wrong source can be very disastrous. Wrong loans for wrong purposes can hurt real well that it even make some people homeless as creditors want their money back.
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