What is meant by the “five Cs”?
The five Cs are five words that summarize the criteria for extending credit used by commercial banks. Specifically, they are:
a. Character – does the credit applicant responsibly meet his/her obligations?
b. Capacity – does the credit applicant have the ability to pay?
c. Capital – does the credit applicant have sufficient resources to make payments under adverse conditions?
d. Collateral – does the credit applicant have assets which can be pledged against the loan to provide a “second way out” should payment not be made?
e. Conditions – what outside factors may make it difficult for the credit applicant to pay and what is the probability and projected effect of each?