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."

Reading References

Barrett: Modern Banking Methods, Chs. IV, V. Bolles: Money, Banking and Finance, Chs. IX, X. Conway and Patterson; Operations of the New Bank Act, Chs. IX, X, XXVIII. Fiske: The Modern Bank, Chs. XVI-XVIII. Hagerty: Mercantile Credit, Chs. III, IV. Howard and Johnson: Money and Banking, Chs. XXI- XXIII. Jefferson: Banking Practice and Foreign Exchange, Chs. VII-IX. Langhlin (Ed.): Banking Reform, Chs. V-VII, XIV. Moxey: Practical Banking, Chs. XIII-XVI. Pratt: Work of Wall Street (Rev. ed.), Chs. XVIII-XX. Prendergast: Credit and Its Uses, Ch. III.