The Five Cs of Credit

You may have heard of the 5 Cs of credit. Understanding how lenders gauge credit worthiness, using the five Cs, can improve your chances of getting a small business loan.

What are the five Cs?


A major factor in determining whether you qualify for a small business loan is your character, which refers to your reputation. It is an indicator of the integrity, stability and responsibility you bring to the business. Your credit score is a key factor in determining character, as it’s the track record you’ve established while managing credit and making payments over time. Your credit report is primarily a detailed list of your credit history including the names of lenders that have extended credit to you, types of credit you have, your payment history, and more. When you meet with your lender, you should know your credit score and be ready to explain anything negative on your report.

As a non-profit lender, Connect2Capital also looks at the business owner’s management ability, experience in the industry, business references, and the impact they want to create in their community as characteristics of character.


A lender wants to be sure that you have the capacity make the payments on your loan. Lenders will look at the historical and projected financial performance of your business. To be considered creditworthy, your business needs sufficient cash flow to support its debts and obligations.


Capital represents the equity invested in the business by owners. The lender will consider what type of capital you put toward your business and how much. Capital demonstrates that you have money for the business to rely on when cash flow is tight.


Lenders consider assets such as real estate and/or equipment to be collateral that secures the loan. They want to make sure there is a secondary source of repayment if you are unable to make your payments. Some lenders may also consider accounts receivable, inventory or monthly credit card receipts as collateral.


Conditions address a several key areas:

  • The conditions of the loan, such as interest rate and amount of principal
  • The economy/industry in which the business operates. Lenders look at risks for the business, industry, and local and national economy. Once the risks are determined, lenders look at whether the business is prepared to mitigate these risks as much as possible.

Webinar: Writing a Business Plan

If you are applying for financing, a solid roadmap becomes especially important as it is the best way for a lender to get a feel for you and your business.

Disclaimer:  the information provided on this page is meant for general informational purposes only and may not reflect the most current resources and recommendations available. Please consult with your financial, tax, legal, and other relevant advisors when making decisions about your small business.