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