When deciding on whether to approve your business loan or not, lenders would often consider the “Five Cs of Credit.†What are the “Five Cs of Credit?†They are a set of criteria lenders use to assess a borrower’s creditworthiness. The “Five Cs of Credit†are:
Character
It is the borrower’s reputation and trustworthiness. Lenders need to evaluate your credit history, employment history, and other personal and professional factors they deem necessary to determine your capability in repaying the loan.
Capacity
It refers to the borrower’s ability to pay off the loan. Lenders will evaluate your income, expenses, and other financial obligations to determine whether you have the financial means to pay your loan on time.
Capital
It refers to the borrower’s assets and net worth. Lenders will check your assets including investments, savings, and properties that can repay the lender in case you default. This works on a secured loan only.
Collateral
It refers to the borrower’s assets that can be used to secure the loan. Lenders will evaluate the quality and value of your collateral to determine whether it is sufficient enough to cover your loan in case of a default.
Conditions
It refers to the current economic and market conditions that may impact the borrower’s ability to pay the loan. The lender will evaluate your industry, current market trends, and economic outlook to determine the risk.
