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?

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