The 5 C’s of Credit

Small business owners who are potential borrowers from lenders like Ace Biz Funding might not be aware of what it is that a lending company is looking for when it comes to lending you money.

Traditionally, the system takes into consideration the five C’s of credit to determine how likely a borrower is to default on their easy term business loan. It is a widely-used strategy to judge the borrower’s success rate and determine if it will be a good investment for everyone involved.

Here’s a breakdown of the 5 C’s of credit: 


How trustworthy and reliable are you? What about you makes your lender believe that you will pay them back in full? How has your company performed on its previous debt obligations? Lenders pay attention to your credit history, your reputation, your loan history, judgements, liens, and bankruptcies to determine what kind of person or business they might be lending to. Lenders may also look at personal credit reports, resume of owners, personal finance statements, and a written business plan.


Capacity is also known as “Cash Flow” in the finance industry. Essentially, capacity is your ability to repay debt. What are the chances that your company can truly generate the funds to pay back the money that you are hoping to borrow from Ace Biz Funding? This is typically calculated through a debt-to-income ratio; by taking net income, adding depreciation and interests, then diving it by annual principal and interest payments of all the company’s debt.


Capital refers to the amount that the borrower is willing to invest in their own company. In a lenders eyes, the more a borrower invests in their own company the more likely they are to make it work. Lenders assess capital to answer “if the business fails, how much are you going to lose?” If you do not invest in your own business, why should a lender invest in you?


Asset lenders base their decision around collateral; something pledged as security for repayment of a loan. Collateral can come in many forms: real estate, inventory, equipment, and accounts receivable. Essentially, it is your backup in case you cannot repay your easy term business loan.


The last of the 5 C’s of credit, but certainly not the least, are the conditions. Conditions are a major category when it comes to lending, and conditions surround two big questions: What are the external circumstances surrounding your business? What will you use the loan for?

Squaring away the 5 C’s of credit can restore your lenders faith in their investment. When it is time to expand your company, purchase new equipment, and hire more employees, call Ace Biz Funding for a flexible and fast, easy term business loan.