Five Cs of Credit Management

Topics: Loan, Credit, Debt Pages: 2 (350 words) Published: October 13, 2013
Name the Five C's of Credit Management
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When banks and other financial institutions make lending decisions, they often rely on the five C's to measure the creditworthiness of an individual borrower or business entity. By measuring these five characteristics, lenders seek to limit their risk and make their loans to borrowers in the best position to pay back the money in full and on time. When it comes to a personal loan, character is a somewhat subjective term, and each banker will look at an individual's character in a slightly different way. For business loans, character often refers to the management style of the business and the experience of the management team. In either case, the borrower looks at the integrity of the would-be borrower and makes a lending decision based on that evaluation. When it comes to a personal loan, character is a somewhat subjective term, and each banker will look at an individual's character in a slightly different way. For business loans, character often refers to the management style of the business and the experience of the management team. In either case, the borrower looks at the integrity of the would-be borrower and makes a lending decision based on that evaluation. Capacity

Capacity in this case means the capacity of the borrower to pay the money back. To evaluate this "C" the lender looks at the borrower's lending and repayment history, as well as credit scores and other subjective measures of creditworthiness.

Capital

Capital refers to the assets the borrower has invested in the business, including equipment, cash flow and retained earnings. The lender will look at the original investment the business owner put up, as well as subsequent profits and how they were reinvested into the firm.

Conditions

Outside conditions can impact the ability of an individual or business to pay back the loan, and the lender must carefully evaluate these potential impacts. For personal loans, outside conditions...
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