CREATING A FINANCIAL FOOTPRINT
ONE view of credit is that it represents spending future money or unearned money to acquire goods and services needed today. Credit availers should be aware that lenders will try to ensure that the money lent will be within what can actually be earned or sourced by the borrower. Suppliers of credit will evaluate the borrower’s capacity and willingness to generate the future revenues that will pay off the debt.
To get a loan approval from whichever source, like banks, institutions, credit- card companies and other financial intermediaries, the borrower will be assessed based on available records, whether good or bad. Positive credit information will be gathered on good past performance such as, but not limited to, information on timely payments and meeting promises made. Lenders also take a look at negative credit performance of the borrower such as late payments or non-payments.
In other words, it is most likely that the borrower will be evaluated based on some historical record. If the subject does not have any credit history, is opaque desired loan becomes a challenge. The technical term is information asymmetry, a situation in which one party in a transaction has more superior information compared to another. Simply put, what one knows about the other is not necessarily the same as what the other knows about himself. And the creditor is looking to solve the asymmetry by aiming for congruence.
External finance sources need adequate information to facilitate decision- making. This includes quantitative and qualitative information such - ness results, forecasts, business plans, state of competition, etc. The creditor checks one important parameter, the borrower’s character that can only be built on reputation and good standing. With this awareness, the borrower’s task is to ensure that there is enough informa- tion that will make it easier for the creditor to make a positive assessment and judgment.
In this environment, one’s financial footprint becomes represents a trail of someone’s - other entity aims to follow, just like looking for footprints of where you’ve been. Since having a better credit assessment, one must knowingly and deliberately build it with care.
The following is one useful taxology of what constitutes a - sonal credit, which includes credit history of the principal consisting of credit cards, home mortgages, payment of utilities and legal re enterprise and the principal must be well kept and this includes ( revenues less expenses) statement, balance sheet, cash flow statement and auditor’s notes. Another category is trade data, which includes verification of borrower’s performance and deal dealing, key suppliers, industry and competition data, customer emerging set of alternative data such as online web transactions, website and the social media the like). Social media is getting to become a powerful tool to unlock one’s history.
Borrowers, especially in the SME sector, should take on this task proactively by improving literacy. If necessary, they could seek the requisite training for this from relevant public and private sector providers. Developing a to chance and is primarily the responsibility of the one whose footprint is being taken. By taking this perspective, the principal will
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