The best barometer of this commitment is the borrower's credit and payment history. Information regarding a person's or businesses's previous payment patterns can be obtained from suppliers, banks, credit card companies or collection agencies. The capacity to repay is a determination made by a lender on whether a borrower has the ability to satisfy a loan. Capacity to repay is a subjective determination based on analysis of objective financials. Lenders examine financial statements, financial ratios and operating data to aid their decision.
Lenders also look at a firm's capital in determining whether to grant a loan.
The amount of capital in a business is equal to the net value of its financial obligations, including both debt capital and equity capital. Measures of capital include financial ratios such as the debt to asset ratio, the current ratio and the debt to worth ratio. Lenders prefer low debt to asset and debt to worth ratios, and high current ratios. These indicate financial stability. As a guarantee against nonpayment, lenders often require that borrowers make a pledge of collateral.