The Four Cs of Banking

All right, we’re going to talk about the four Cs of banking. Essentially talking about borrowing money. So let’s start off with the first C, which is character. You think about back in the day with the banks and everything. You probably knew the Loan Officer, maybe knew the President of the bank and you were able to walk into that bank and people, everybody knew you and knew maybe you were of high character and ultimately they’d be more than happy to lend you money just based simply on that. I know my Grandfather who passed away before I was born, Emmet Shay was over in the Alpena area and he was the President of a bank back in the ’50s and ’60s. So I picture what life would have been like for him as far as lending money. The second C comes to collateral. You know what is it you can put up for collateral? Is that a vehicle? Is it a piece of equipment? Again going back in time thinking about you know the farmer that just needs a little additional funds maybe to put out his crop for the season. Maybe he’s going to put that expensive equipment, the tractor up as a piece of collateral. The third C, cash flow. How vital it is that you have the ability to pay back that loan and it’s just not okay, what do you have coming in, but maybe how long have you been seeing that income? I mean a lot of times people want to see, Bankers want to see okay, the last couple of years worth of tax returns, but it’s definitely helpful when you have a long standing position with the company and regular income showing that okay, this is not just a short period of time that you’ve been collecting that income and can cover those expenses. The fourth C, credit. Agencies are out there and they’re regularly rating you on your credit score. What has been your past payment history? Maybe how many loans do you have and how long have you had those open? That’s something that I struggle with. I’m not a big fan of loans. I like to not have debt and make sure that bills are paid as quickly as possible. So it amazes me that the more loans that you have potentially can improve that credit score that you may be looking at. So again, those four Cs of banking or borrowing: character, collateral, cash flow and credit. All vital things that you should be paying attention to and ultimately be prepared to go to that bank and take care of that loan.