Credit analysis typically involves assessing the following components:
1. Character: This evaluates the borrower's reputation and willingness to repay the debt. Factors such as credit history, references, and background checks are considered. 2. Capacity: This measures the borrower’s ability to repay the loan by analyzing income streams, cash flow, and existing debts. 3. Capital: This involves evaluating the borrower’s net worth and financial reserves, indicating their ability to withstand financial setbacks. 4. Collateral: This is the security provided by the borrower against the loan, which can be seized in case of default. 5. Conditions: This includes the economic environment, industry trends, and any external factors that may impact the borrower’s ability to repay.