139. Importance In Bank

If it can be said that one department is more important in a commercial bank than another, surely the credit department is that one. A great deal has been written of late in regard to the systematic gathering of credit information. In a small country bank, the need for classified information regarding borrowers is not so essential to success; but even if the banker feels that he knows each one of his borrowers and just what he is worth, a memorandum file of what has transpired in the loaning account of a customer in the past five or ten years may cause a slightly different decision in regard to a new application. Statements are hard to get in rural communities; because all business men do not keep accounts. Many men who do thousands of dollars worth of business in a year depend entirely upon their check books and stubs as their sole book records. With this class of borrower it will be impossible to obtain more than an estimated statement, but if such facts as can be gathered in this way are reduced to writing and signed by the prospective borrower, they will prove valuable to a tired memory or to the successors or substitute for the incumbent of the presidential chair.

When the community is of such a size that personal acquaintance with every borrower is impossible, or where the population is changing or increasing rapidly, the establishment of a credit department should not be regarded as a useless expense. In large cities such a department is absolutely essential.

The first requisite of a good credit department is an efficient credit man to take charge. To state the qualities that go to make up such a credit man would seem like naming all the virtues and saying these he must have. Some things are essential. The man must have a fair knowledge of accounts so as to be able to read between the lines of a statement. He should be a man of pleasing address, able to meet with and draw out of men the information he desires to know in determining the credit a borrower should have. He should never give offense to a debtor under any circumstances. A knowledge of shorthand would be useful, but it should be used with caution. It is a serious mistake to take a conversation down verbatim. Men dislike to be quoted on such matters and the feeling that every word is being recorded has the effect of sealing their lips rather than opening them. The credit man should keep posted regarding conditions of trade, assignments, judgments, conveyances, mortgages, petitions in bankruptcy, etc., and anything that may concern the bank or its customers. It may seem like sacrilege to suggest that banks should exchange information regarding borrowers, but it frequently happens that two or three banks within a stone's throw of each other loan money to the same borrower and each thinks it is the only creditor.

Credit has been defined as "A question of ability to pay coupled with an intention to pay." Both ability and intention must be assured in order that the credit may be considered a safe proposition. The latter of these requisites is one that must be settled on the basis of past experience, habits of life, character, etc. If a man always has paid his debts and is not living beyond his means, his intention to pay will be practically assured. The ability to pay is quite another matter and more difficult to determine. It is in this end of the credit work that the credit man is able to display his genius. The information that a credit man obtains from others often compares with the following anecdote:

Abraham Lincoln was once called upon to give a report on the financial standing of a brother attorney. Lincoln replied: "I called on Jones at his office and found that he had a wife and a baby, and that ought to be worth $50,000 to any man; he possessed half a dozen law books, two wooden chairs, a pine table, and a rat hole that is certainly worth looking into."

There are certain facts that a credit man must know in order to determine whether or not the bank will extend credit to a borrower:

1. The character of the management of the business.

2. The character of the business.

3. What the competition is.

4. How the concern is organized to do business.

5. What are their business methods.

6. Do they pay their bills.

7. What are they worth.

8. What do other people think of them.

He must obtain these facts from various sources, and from the information gathered form his conclusions.