5. The character of the merchandise owned by the borrower. What would
it bring under the hammer? Groceries and raw material can usually be
turned into cash at a forced sale at very small discount from current
prices. Not so with hardware, glass, dry goods, boots and shoes,
books, etc. Machinery and fixtures are not a bankable asset upon
which to base credit.
The banker should note his borrower's bills payable. Why did he give
notes? Are they met promptly? Many houses prefer to sell their own
paper in the open market, and keep their banks open for accommodations
when they are unable to secure outside credit. The insurance carried
should be considered; also the volume of business done. A large
business on moderate capital, with long credits, will naturally have
large liabilities, while a small business with a liberal capital and
short credits should have small liabilities.
Paper offered for discount is of a variety of kinds. The larger
proportion of it is from customers of the borrower who have extended
their credit by paying their accounts in notes instead of in cash.
Such paper is really, though having two names, very little better
than single-name paper, for it is not the maker's credit, but the
payee's, which the bank usually considers. Many very small notes
offered for discount usually indicate a very needy condition.
There are many firms which carry two or more bank accounts, and others
who sell their paper to out-of-town banks. In buying paper it is
important to ascertain whether the firm is in the habit of taking up
paper at one bank by floating a loan at another.
Paper may be classified for purposes of discount as follows:
1. Bills drawn by shippers on the houses to which the goods are
shipped.
2. Bills drawn by importers against commodities placed in brokers'
hands for sale.