CREDIT, ITS USES,

CLASSIFICATIONS AND
RISKS

 Credit is based on confidence in the debtors

ability to make payment at some future time.
The reason for credit is the need or desire to
obtain economic goods ahead of the capacity
to pay.
Credit is the power or ability to obtain money,
goods and services at the present time in
exchange for a promise to pay with money
upon demand or at a future determinable
time.

Functions of Credit
Credit is used as a medium of exchange.
Credit induces people to save.
Credit enables businessmen and
corporations to gather large amounts of
capital to undertake large-scale
production.
Credit allows wealth to be fully utilized
Credit helps in the expansion and
contraction of the money supply.

Characteristics of Credit

Bipartite Contract
Pecuniary Contract
Fiduciary Contract
Risk
Futurity

Credit and The Business

Cycle
A. Personal Credit
B. Commercial Mercantile Credit
C. Bank Credit or Bank Loans
D. Export and Import Credit
E. Investment Credit
F. Agricultural Credit
G. Industrial Credit
H. Real Estate Credit
I. Government or Public Credit
J. Secured and Unsecured Credits
K. Short-term, Medium-term, and Long-term Loans
L. Direct Loans, Discount Loans, and Credit Lines

Sources of Credit

Banks
Thrift bank
Savings and Mortgage banks
Stock savings and loan association
Private development Bank
Rural Banks

Other Sources of Credit

Retail Stores
Credit Unions
Individual Money Lenders
Insurance Companies
Sales Finance Companies

Credit Risk
It is the possibility of non-payment of
the obligation when it falls due.

5 Cs of Credit
Character is a quality of credit risk which makes
the debtor pay or intend to pay when his debt is
due.
Capacity signifies the ability of a debtor to pay
his obligation.
Capital is the financial strength of a business.
Collateral are properties of value pledged to
secure a loan.
Condition refers to the environment in the
customers industry, economically, legally, and
politically in relation to growth.

Hazards in the Use of Credit