The preliminary work in the procuring of new customers will ordinarily be done by the bank officer in charge of the area where the prospective customer lives, but sometimes banks allot such work to a special department known as a "new business" de partment. The officer or the new business department, as the case may be, submits to the credit department names of prospec tive accounts. Such names are immediately placed under investi gation, if the information on them at hand is not already up to date, and upon the basis of the information collected the credit department decides whether the candidate would make a desir able customer or not and recommends accordingly.
Sources of Credit Information The credit men of banks and of commercial houses use much the same sources of credit information and the same methods of procuring it. In general the commercial houses are less exacting and accept higher risks; they also have special interests to serve which banks do not have; their credit extensions are mostly in their own line of trade, whereas banks cover all lines; and they can use their traveling salesmen as credit reporters, arrange credit inter change bureaus within their state or national trade organizations, and employ certain other facilities, from all of which banks are excluded. For these and other reasons it seems best to consider primarily the credit sources and methods used by bank credit men. The more numerous the sources of information used the more reliable arc the conclusions that may be drawn, since one source acts as a check on the others; hence, every class of views it is possible to obtain should be consulted and the investigations diversified accordingly.
1. Interviews with Borrowers The most fundamental and important source of data is the borrower himself, expressed in a personal interview and a finan cial statement. An interview gives the borrower opportunity to convince the credit man that he possesses character, business ability, and a knowledge of his line of business, and is therefore entitled to credit; he may also in confidence explain away certain apprehensions which the credit man has toward him. On the other hand, the credit man is given opportunity to ascertain and estimate the applicant's character, business capacities, and methods, and to inquire closely into any doubtful feature.
The applicant should visit the bank credit man in person.
But it is equally common for the bank credit man or his personal representative, a credit investigator, to visit the applicant in his place of business; he goes loaded with all the credit information procurable from other sources, and tactfully lets the applicant explain away any doubt upon his title to credit. How searching this interview may be depends upon whether the line of credit considered is abnormal and whether any serious weaknesses are disclosed. The interview may become an inquisition, and the credit man make a thorough examination of the books, account ing, organization, and management of the applicant concern.
Utility of Financial Statements When a person applies to a bank to open an account and establish the regular relations of borrower and depositor he under stands that the bank will ask him to submit a statement of his affairs and that the bank will make a credit investigation. Busi ness policy requires not only that the bank guard itself against losses from bad loans but also that it defend its good name by keeping a good personnel of customers.
The practice of asking and requiring financial statements from customers originated only a generation ago, and the spread of the practice is a notable fact of recent banking history. It is no longer considered a mere technical and bothersome imposition on appli cant borrowers; nor is it regarded sound practice to compete for customers by showing leniency in this matter. The American Bankers' Association, the various state bankers' associations, the National Association of Credit Men, the federal reserve banks, certain clearing houses, and most of the large banks, have pre pared statement forms for applicant banks, corporations, firms, and individuals, and have urged their use in determining credit title.
For an applicant to refuse to tender a full statement or to do it reluctantly or to omit certain vital data has come to create a suspicion, and may induce the bank either to refuse credit en tirely or to offer a more limited line. It is also important that the statement be prepared in a businesslike manner, for the style, completeness, and precision of the statement are bound to im press the credit man with the applicant's business capacity and careful methods of bookkeeping, or their opposites.