W INTRODUCTION THE GRANTING OF CREDIT BY JAMES G. CANNON HAT is credit? The term "credit" is derived from the Latin word credo (I believe) and its opposite word "debt" from debeo (I owe); and there can be no debt without credit and no credit without debt. The word implies the belief of one of the parties to a transaction in a promise made by the other and an obligation acknowledged by one party as due to the other. "The Century Dictionary" defines credit as"Trust; confidence reposed in the ability and intention of a purchaser (of merchandise, or a borrower of money) to make payments at some future time either specified or indefinite." Some one has said "credit is to business what mortar is to a wall; it is the adhesive material with which commerce is cemented." For the most part we buy and sell merchandise, agricultural products, stocks and bonds, real estate, and everything that can be bought and sold, not for money paid down, but with promises to pay money at some future date. The money of the country has been likened to the blood that circulates through the body; but as it has been demonstrated that over 90 per cent of the business of the country is done through the medium of credits, I should liken credit to the body itself, and whatever conduces to its growth and development will to that extent build up and strengthen commerce. The humblest citizen, as well as the greatest manufacturer, feels the power and recognizes the influence of credit. Credit enters into the life of every business man in this country. The rapid development of this country is largely due to the liberality with which, for many years, credit has been granted, furnishing the bold, aggressive business men with means to accomplish results which otherwise they could not have reached. There are very few large or reputable concerns doing business to-day without borrowing, and I am unable to recall more than one or two instances of a firm or company of any prominence which does not borrow directly, or use its credit in some other way. There may possibly be a few concerns in the country whose surplus is so large that they find it unnecessary to use their credit, but such cases are rare exceptions. Credit is indispensable; and whether it be given in the way of money or merchandise, it augments the public wealth, advances the prosperity of the country, and insures progress so long as it is given judiciously and wisely. On the other hand, if it be extended to persons who are unworthy or who become embarrassed because of their lack of character, ability, honesty, or capital, the result is extremely detrimental. Some one has truly said that "credit never knocks at the door of the indolent, never lingers under the shadow of indecision, never smiles on good intentions that are barren of results." Credit oftentimes becomes too cheap and is too readily obtained. As a result, a period of inflation follows until the bubble bursts and a panic ensues, which is disastrous alike to debtor and creditor. All dispensers of credit, therefore, should be particular to bear in mind that it is highly desirable to curb the spirit of overtrading, the results of which are injurious not only to banks but to those who seek favor at the banker's hands. The principles of Scientific Credit to-day are: 1. To reduce losses. 2. To eliminate disproportionate risks. 3. To conserve worthy interests. 4. To war on dishonesty and incompetence. Never in the history of American commerce has there been such close scrutiny of credits as is now being made; and I believe one of the reasons is that a new factor has appeared in business circles in the shape of industrial and commercial corporations as applicants for credit. The personal and friendly element existing between debtor and creditor is eliminated, and corporations (said to have no souls) are rapidly being organized in place of partnerships. Thus the question of family prestige and the protection of a family name are fast ceasing to be factors. Men who would struggle to maintain their family honor and keep their family name from records of the bankruptcy court, as stockholders and managers of corporations have not the same incentives to pay their debts one hundred cents on the dollar. The history of our country is replete with instances of men compelled to succumb to disaster, who, later on, achieved financial success and proudly paid their indebtedness, principal and interest. Men who own or mainly own and control corporations that fail have no need to fight for their family honor. Instead, they pose before the public as unfortunate investors in a disastrous enterprise, claiming sympathy for their losses, with no thought that there rests upon them an honorable obligation to satisfy the corporation's creditors out of any funds that fortune in the future may enable them to accumulate. Personal credit and personal honor thus screen themselves behind joint-stock companies and corporations; and the giver of credit is subjected to greater labor and is compelled to scrutinize more closely in order to protect himself from loss. As time goes on, the margin of profit in all lines of business seems to be constantly narrowing; and in view of this condition of affairs, we all find that we can not afford to stand the losses we formerly sustained through failures; consequently, the lines must be closely drawn and every precaution possible taken to eliminate those concerns that are unworthy of credit and whose existence constitutes a standing menace to reputable and legitimate business enterprises. To extend credit properly and safely requires the highest exercise of mental powers, for many complex questions are to be solved, and oftentimes the credit man is called upon to make investigations which are both delicate and intricate in their nature. In considering the responsibility of a borrower, it would seem that his total net worth should be first ascertained. If the amount of money which he has invested in the business is small, and he is likely to be a large borrower, his credit should be based proportionately. We should also consider his record and standing in the community as a merchant. Has he ever failed? If so, what were the circumstances? What are his habits in private life? What settlement did he make with his creditors? Is he extravagant-does he live beyond his means? Is he a gambler, a speculator, or is there anything that would lead him to spend more money than he can safely take from his business? We should also look into his business record. Does he nay his bills promptly, and how does he stand in the trade which he represents? These points, it seems to me, should define the line of credit to be granted. We should also consider his claims to credit. What are the characteristics of the borrower? Has he ability? Has he a reputation for honesty? Does he show that his business is prosperous? Is he up and abreast with the modern methods of transacting business, or is his business on the down grade? And finally, what is his present financial condition? This should be gathered from a statement over his signature, giving in detail his assets and liabilities. The fundamental basis of all credit should be a signed statement. It is conceded by all that the applicant for credit can give better information about himself than can any of his friends or competitors. First-hand information is always preferable. While to some extent it is necessary to do business on faith, yet facts, if obtainable, will stand us in better stead. If the credit man depends upon indefinite and hearsay information, making that the basis for credit, he has only himself to blame when a loss is the result; but if, on the other hand, he has sought and obtained a full detailed signed statement, and has carefully analyzed, weighed, and verified it, so far as lies |