is not so important, but in the case of the discount or purchase of commercial paper resting upon personal credit the financial responsibility and character of the borrower is a matter of first importance.

The credit man should keep complete records regarding mortgages, judgments, assignments, petitions in bankruptcy and like matters affecting the bank's customers. He should have available the financial history, the present

standing, and the habits of life and character of every borrower. He should also keep posted on the general conditions of business. In aiding the lending authorities of the bank to determine whether credit shall be extended to a

STANDARD FORM OF STATEMENT FOR CORPORATIONS AS ADOPTED BY NEW YORK STATE BANKERS ASSOCIATION

FROM

ADDRESS

TO NATIONAL BANK OF COMMERCE IN NEW YORK

FOR THE PURPOSE OF PROCURING CREDIT FROM TIME TO TIME WITH YOU FOR OUR NEGOTIABLE PAPER OR OTHERWISE, WE FURNISH THE FOLLOWING AS A TRUE AND ACCURATE STATEMENT OF OUR FINANCIAL CONDITION ON 199 WHICH YOU ARE TO CONSIDER AS CONTINUING TO BE FULL AND ACCURATE UNTIL WE GIVE YOU WRITTEN NOTICE OF CHAN

CONTINGENT LIABILITY: NOTES RECEIVABLE OF CUSTOMERS DISCOUNTED OR SOLD AND NOT INCLUDED IN ABSETS ENUMERATED ABOVE

OTHER CONTINGENT WABILITY.

TOTAL

WE HAVE NOT PLEDGED OR ASSIGNED ANY OF THE ABOVE ACCOUNTS RECEIVABLE; OUR ASSIGNED ACCOUNTS RECEIVABLE AMOUNT TO

139723432 80000000 12581721 13004153 10 20000

150.5000.00 160053000 48015600

336 109.00 LIH OH 80

1740000 16144680 48.00000 12110

Plaat (including load,
1 machinery

Discount where offered,

or go de net

TIME OF YEAR WHEN NOTES AND ACCOUNTS RECEIVABLE CUSTOMERS, OLLECTED, ARE GENERALLY MAXIMUM

borrower and to what extent, the credit man should be able to present facts concerning the character of the business, its form of organization, its management and business methods, the extent of competition, the promptness with which bills are paid, the financial worth of the business, the extent of borrowing at other banks, business reputation among other people, etc.

The credit man obtains his information from various

VERIFICATION: HAY BOOKS BEEN AUDITED CERTIFIED PUBLIC ACCOUNTANTO, NAME AND DATE OF AUDIT...

DATE SIGNED.

sources, the chief source being the statements of the customers themselves. The practice is growing of requiring borrowers to make a full statement of their affairs when they apply for a loan. Uniform blanks have been adopted by the bank associations of several states. Some banks require applicants to make oath to their statement. In some of the states laws have been passed making it a criminal offence to obtain loans on false or misleading statements. Sometimes the banks require the statement to be certified by a public accountant. Separate forms are used for individual borrowers, for firms, for corporations, and for banks. Shorter forms

are sometimes used when minute details are not deemed necessary.

These statements call for detailed information regarding the resources and liabilities of the applicant, including such typical assets as: cash, merchandise in both the raw and manufactured form, bills receivable, accounts receivable, plant, machinery, equipment, real estate, franchises, treasury stock, etc.; and such liability items as bills payable, accounts payable, stocks, bonds, mortgages, depreciation, net worth, net earnings. The ratio of quick assets to the two important liability items-bills payable and open accounts-affords a rough basis for determining the commercial standing of the borrower. One dollar of indebtedness to a dollar and a half of quick assets is usually regarded as a safe proportion.

Other sources of information are the mercantile or credit agencies, the most important of which in this country are Dun's and Bradstreet's. It is the business of these credit agencies to collect and summarize credit information regarding all kinds of business concerns all over the country. Though the banks do not depend very largely upon these agency reports, they are valuable in suggesting credit information that might otherwise be overlooked. Such reports should always be supplemented by personal investigation.

The signed statements, agency reports, letters, memoranda, and credit information of all kinds are tabulated, analyzed, and filed in the credit department in readily available form. New statements are required from time to time as borrowers apply for new loans or as paper is offered for discount. In the case of regular borrowers banks may require statements only at regular intervals, for example, once, twice, or four times a year. In this way the banks will have after a time. a series of statements from borrowers showing the changes in their business.

In the bank having a well-organized credit department every application for a loan or offer of commercial paper

is referred to the credit man. After investigation he prepares for the loaning officers a condensed statement showing the essential facts affecting the applicant's credit. Upon the basis of these facts mainly is determined the granting or refusing of credit accommodations by the bank.

139. Elements of credit.-In any analysis of credit, emphasis is always laid on four main elements—character, capacity, capital and collateral. It is not enough that a borrower shall be of undoubted integrity and honesty; the most reputable men sometimes fail in business because of lack of capacity or capital. Capacity without character and business probity may possibly secure temporary credit and business success, but there is always present an element of uncertainty. A borrower with plenty of capital but without character and capacity is likely to waste it or to turn it into unproductive channels, bringing discredit upon himself and distress to his associates. This holds true also of the borrower having collateral but lacking character and capacity.

"If the borrower have character and capacity," says a prominent banker, "you have a combination which will more than likely win out, one which will magnetically draw either capital or collateral, or both. We think there is hardly a line of trade in which, if character and tried capacity can be brought together, credit cannot be obtained for a start or capital attracted to the venture. . . . If the credit man be certain of both character and capacity in an established business, he will need to give but a passing notice to the statement, for with character behind the schedule it will have been made up honestly, and with capacity behind it the man did not deceive himself or you. It means that the statement speaks conservatism, and that he has both technical ability and ability to finance. The sales made in this country in the course of a year upon character and capacity, with capital a minor factor, would run into the hundreds of millions of dollars, and the percentage of loss entailed under good credit management has been very low."