Corporate Risk & Valuation · Entry 09 of 71

What Are the 5 Cs of Credit?

The standard framework used by lenders to assess creditworthiness

The 5 Cs of Credit are key factors used to evaluate a borrower's default risk

1. Character: Your reliability and repayment history. Measures your reputation and past payment discipline.
2. Capacity: Your ability to repay based on income, operating margins, and existing obligations.
3. Capital: Your personal financial investment or net worth. The 'skin in the game' the borrower has.
4. Collateral: Assets pledged to secure the loan. Acts as a backup source of recovery for the lender.
5. Conditions: The purpose of the loan and overall macroeconomic environment (e.g., industry trends, inflation, interest rates).