35 years: Corporate banking
In this second part of the series, Paul provides an overview of the three Cs for assessing the creditworthiness of a potential borrower. He also explains the PARTS framework.
In this second part of the series, Paul provides an overview of the three Cs for assessing the creditworthiness of a potential borrower. He also explains the PARTS framework.
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11 mins 56 secs
The three Cs and PARTS framework are useful tools for assessing the creditworthiness of a potential borrower. These frameworks can be used to assess both individuals and firms alike.
Key learning objectives:
Outline the 3Cs used to assess the creditworthiness of a potential borrower
Understand the PARTS acronym and describe how it is used to assess creditworthiness
Identify how banks determine the capital behind a borrower
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The ideal characteristics of a borrower are honesty, reliability, stability, resilience, good values & behaviours and prudence.
This is not always easy to establish, so it is important to ask good questions to bring out key information on background, education and current circumstances.
Company borrowers should be prepared to disclose confidential information under disclosure agreements in order to qualify for lending facilities.
Character will be assessed by looking at ownership, business structure, history, reputation, longevity, the nature of the business, how it promotes itself, and the people it employs.
For an individual:
For a firm:
A bank will try to assess what funds or assets an individual or firm have ‘behind them’ or ‘in reserve’. They will try to determine the net worth of the person or firm by looking at savings, other assets and any equity in a house or business.
For an individual:
For a firm:
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