The Five Cs of Credit

Insights
Revised: 06 January 2023
Published: 08 September 2022
Pathward 5C's image

Here are the factors banks consider when you apply for a loan. 


When the time comes to meet with a bank to determine whether you are eligible for a loan, there are five key factors the bank will consider in the process. These key factors are known as the Five Cs of Credit: Capital, Condition, Capacity, Collateral, and Character. Each of these factors is evaluated by your lender and ultimately will determine whether you’re on the way to receiving your loan. 

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 you have contributed any funds to the business, as well as how personally invested you are in the business.

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 and cash flow to 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 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 you get the loan. It is important to find a lending partner that is reliable and trustworthy for your business loan. Pathward is a trusted partner to companies in a variety of industries, providing the financing they need to help their business grow.


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