Making credit decisions

Customers (enterprises) can receive credit from a bank or a firm if they meet the firm’s credit standards. A firm’s credit terms and credit standards make up the firm’s credit policy. Credit standards are those requirements a customer must satisfy to receive a credit (character, payment history and so on). The financing companies usually base their credit standards on the Five Cs of Credit: character, capacity, capital, collateral, and conditions.

1. Character is the borrower’s willingness to pay. Lenders should evaluate character by considering the borrower’s past payment patterns. A good payment record in the past implies willingness to pay debts in future.

2. Capacity is the borrower’s ability to pay, as indicated by forecasts in the future cash flows. The more confidence a lender has that a borrower is going to receive cash in the future, the more willing the lender will be to grant credit now.

3. Capital: shows how much wealth a borrower has to fall back on, in case the expected future cash flows with the borrower plans to pay debts don’t materialize. Lenders feel more comfortable if borrowers have something they could liquidate if necessary to pay their debts.

4. Collateral is what the lender gets if capacity and capital fail, and the borrower defaults on a loan. Collateral is usually some form of tangible assets such as the firm’s inventory, buildings, manufacturing equipment that has been pledged as security by the borrower.

5. Conditions: are the business conditions the borrower is expected to face. The more favourable business conditions appear to be for the borrower, the more willing lenders are to grant credit.

To evaluate potential credit customers in terms of Five Cs of Credit or others firms find some way to quantify how well the customer’s compare to the measurement criteria. Some companies use the method known as credit scoring. Credit scoring works by assigning points according to how well customers meet the indicators of creditworthiness.

Exercise 7. Read the text once again and find key words in every passage.

Exercise 8. Read every passage once again and express its contents in one sentence.

Exercise 9. Translate the sentences into English. Review grammar in §1, §3 of grammar supplementary:

1. Известно, что для получения кредита, клиент должен соответствовать кредитным стандартам компании.

2. Условия кредитования были внимательно изучены заемщиком.

3. Ты взял кредит под низкий процент, не так ли?

4. Сложно предсказать, какова будет кредитная политика в следующем году.

5. Банк был вынужден отказать в кредите, без объяснения причин.

6. Чем лучше кредитная история клиента, тем больше вероятность получить необходимый займ.

7. Кредитоспособность клиента внимательно изучается сейчас нашей фирмой.

8. Если ты планируешь начать собственный бизнес, тебе потребуется первоначальный капитал.

9. Если у клиента есть собственность, он может оставить ее в залог.

10. Сколько времени требуется финансовой компании, чтобы принять решение по выдаче кредита?

Exercise 10. Look through a sample of a simplified credit score worksheet to determine an applicant’s creditworthiness. Make up a dialogue: one of you is a bank representative who is going to refuse in giving a credit to the applicant (the second interlocutor), using this worksheet for explaining the reasons of refusal.

CRITERIA SCORE
1. Length of time since missing a payment on any loan More than four years Three to four years Two to three years One to two years Less than one year	4 points 3 points 2 points 1 point 0 points	_____________
2. Length of time in business More than four years Three to four years Two to three years One to two years Less than one year	4 points 3 points 2 points 1 point 0 points	______________
3. Net income More than 200,000$ $100,000 to $200,000 $50,000 to $100,000 $25,000 to $50,000 Less than $25,000	4 points 3 points 2 points 1 point 0 points	______________
4. Net worth More than $1 million $500,000 to $1 million $100,000 to $500,000 $50,000 to $100,000 Less tan $50,000	4 points 3 points 2 points 1 point 0 points	______________
5. Market value of tangible assets More than $1 million $500,000 to $1 million $100,000 to $500,000 $50,000 to $100,000 Less tan $50,000	4 points 3 points 2 points 1 point 0 points	______________
6. Expected business growth rate in next five years More than 20% 15 to 20% 10 to 15% 5 to 10% Less 5 %	4 points 3 points 2 points 1 point 0 points	______________
Approved for Credit score = 12 or more

Test 5

1. There was nobody in the conference room, _____________?

A was there

B were they

C wasn’t there

2. You (discuss) _______________some matters when I entered the office. What were they?

A discussed

B were discussing

C had discussed

3. What made you (sign) ____________ such an agreement?

A to sign

B signed

C sign

4. We are going to reinvest in (modern) ____________equipment next month.

A the modernest

B the most modern

C moderner

5. If you (happen) __________ to see the accountant, ask him to visit my office.

A would happen

B will happen

C happen