Understanding the 5 C’s of Credit before applying for a loan

The 5 C’s of credit offers lenders a framework to evaluate a loan applicant’s creditworthiness and how worthy they are to receive new credit. They do this by evaluating a borrower’s character, capacity to make payments on time, economic conditions, and available capital and collateral. Here are the 5 C’s and what they mean:

  1. Character – the borrower’s reputation and past credit history
    1. Business loan providers will consider the borrower’s previous credit history, payment habits, bank account management and financial standing
  2. Capacity – the borrower’s ability to repay the business loan
    1. Lenders will look at the borrower’s income, debts, and other expenses to determine if they can repay the loan on time
  3. Capital – the borrower’s financial resources and assets
    1. Lenders want to see that the borrower has a solid financial position and support for unexpected events
  4. Collateral – the assets a borrower can use as security for the loan
    1. Lenders want to see that the borrower has something to lose if they default on the loan
  5. Conditions – the economic/market conditions when business loans were drawn down
    1. Lenders need to consider economic conditions, interest rates etc.

For more information on loan applications or how we can assist you, please feel free to contact us.