Credit Basics

Credit had a role to play from the early days of civilization. A proper credit risk analysis brings to light the probability of credit loss arising out of genuine business factors. The credit markets dwarf the equity markets. Since both equity market and credit markets are part of larger capital market, sometimes both markets may move together. This chapter looks at the advantages and disadvantages of credit to the borrower. Suppliers of credit can be briefly classified as: commercial banks, term lending/development institutions, public debt market, other institutions in credit financing, and trade credit. Most of the suppliers of credit are interested in the upside business potential of the customer although the downside risk is a vital consideration of credit risk analysis.