The Five Cs of Credit

When the time comes to meet with a bank to consider whether or not you are eligible for a loan, there are five key factors that the bank will take into account in the process. These key factors are known as the 5 Cs of Credit and include Capital, Condition, Capacity, Collateral, and Character.  Each of these factors is evaluated by your lender and ultimately will determine whether or not you’re on the way to receiving your loan.

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Capital

When you meet with your lender, they will want to know that you are invested in the company both personally and financially. They will consider whether or not you have contributed any funds to the business, as well as, how personally invested you are in the business. Recognize that there is more to a loan than just showing you’re passionate about a project in order to get the loan.

Condition

This factor takes into consideration the level of risk your company has in the market. What are the local economic conditions that can affect the success of your business? In addition, they will factor in your relationships with vendors and customers, your competitive advantage and the overall industry landscape.

Capacity

This shows whether your business will have sufficient cash flow to repay the loan. The lender will take into consideration your payment history, cash flow, and determine the probability of repayment.

Collateral

When the lender reviews your assets and collateral, they want to ensure that the assets match the loan type and can support the loan if necessary.

Character

A lender can take into consideration all of the above factors, but a key component that could affect their decision is their personal experience with you. They’ll evaluate your references, your credit reports, and your overall professional demeanor.

Each of the factors plays a key role in determining whether or not you get the loan. It is important to find a lending partner that is reliable and trustworthy for your business loan. Crestmark is a trusted partner to companies in a variety of industries, providing the financing they need to help their business grow.

Check out the infographic to learn more about the 5 Cs of Credit and how Crestmark can help you through the process!

 

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