Identify and define the borrower-specific and market-specific factors that enter into the credit decision. What is the impact of each type of factor on the risk premium?

a. Which of these factors is more likely to adversely affect small businesses rather than large businesses in the credit assessment process by lenders?

b.  How does the existence of a high debt ratio typically affect the risk of the borrower?

c. Why is the volatility of the earnings stream of a borrower important to a lender?