Which term refers to the borrower's reputation for fair and ethical business practices?

Which term refers to the borrower's reputation for fair and ethical business practices?

• A. IPO
• B. Capacity
• C. Character
• D. Collateral

Answer: (C)

Character refers to the borrower's reputation for fair and ethical business practices. It captures honesty, integrity, and a history of meeting obligations. Lenders weigh character to gauge credit risk beyond numbers, because a borrower with a trustworthy track record is more likely to repay debts even if earnings fluctuate. This complements capacity, which looks at the ability to repay from cash flow, and collateral, which is the assets pledged as security. An IPO is unrelated to creditworthiness, so it doesn’t describe the borrower’s repayment ethics.

Character refers to the borrower's reputation for fair and ethical business practices. It captures honesty, integrity, and a history of meeting obligations. Lenders weigh character to gauge credit risk beyond numbers, because a borrower with a trustworthy track record is more likely to repay debts even if earnings fluctuate. This complements capacity, which looks at the ability to repay from cash flow, and collateral, which is the assets pledged as security. An IPO is unrelated to creditworthiness, so it doesn’t describe the borrower’s repayment ethics.