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Principles of Business Credit

Chapter 1 - Credit: must involve exchange of values - 5 C’s of credit: character, capacity, capital, collateral, conditions - credit ( can be private or public - Credit Process: o First goes through a buyer who wants to buy a service or product o operating cycle: activities company goes through to produce and sell its goods and services o production stage: when material is converted into goods o manufacturer then sells finished goods to customers and customer pays for goods that were purchased on credit (collection stage) - Types of Credit o Public credit: government credit o Private credit: extended or used by individuals or businesses to carry on exchange of goods and services in private sector

Private credit: - Investment credit - Consumer credit - Agricultural credit - Business credit - Bank credit

Investment Credit: long-term borrowing of large amounts of money to finance productive assets. Primarily loans made to governments or businesses to raise money to pay for expansion modernization or public projects. - Bonds of fixed income securities (generally 10+ years) - Asset backed bond (backed by specific holdings for ex. Real estate) - Debentures (backed by financial standing, not assets) most common. - Secured bonds o Mortgage bonds o Equipment trust certificates (bonds issued to buy new equipment, secured by the new equipment) o Collateral trust bonds (backed by stocks & bonds)
Consumer Credit: credit extended to a natural person primarily for personal, family or household purposes. - can be either open-end, closed-end, or incidental - Open end: credit extended under a plan which a creditor may permit an applicant to make purchases or obtain loans from

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