Capital is one of the 5 C's of credit. The others are Character, Capacity, Collateral and Conditions.
Capital, in this case, refers to the borrower's investment in a proposed venture. Sometimes it may not be the amount of the investment as it is the proportion of the borrower's net worth. It is an indication of the borrower's confidence in the proposed venture.
Net worth and equity of the borrower are the main financial categories considered by a lender.
Consider the lender's point of view. Why should the lender be the sole risk taker? If the venture becomes very profitable, what is the lender's share? Does it include a share of the profits or just the return of principal and interest? If the venture fails what does the lender lose? What is the essence of a fair partnership?
Share the risk.
A wise and well respected business person was often approached by young people seeking his advice and assistance for starting a business venture.
The first question he would ask was, "how much money have you saved?"
He was not concerned so much with the amount saved as knowing how the money was acquired, the period of time the savings existed and what portion of earned money was saved. He would only invest his valuable time on requesters who demonstrated extraordinary performance in saving money.
In his community, to earn his advice was considered a great accomplishment and many successful business people owe much of their success to his advice and support.
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