The 5 Cs of Credit: How to Better Qualify for a Loan

Written by: Maryan Ali

In order to get your business officially up and running one of the first things on your to-do list would be to apply for a loan. This task can be a little nerve-racking for someone who has little or no experience with business credit. This is why we here at Collab Space, would like to give you some helpful tips in order to ease the application process and increase your likelihood of loan acceptance. Lenders follow certain protocol when evaluating applications and a popular method used to determine whether or not to issue a loan is the credit analysis of the 5 Cs; character, capacity, capital, collateral, and conditions. To better your chances of qualifying for a loan it is extremely important to mention these 5 Cs, in depth, so that lenders are fully aware of your creditworthiness.


1) CHARACTER: This refers to the applicant’s WILLINGNESS to pay off the debt. Since lenders do not know you personally, they will make subjective judgements about a potential your character. The characteristics most often called into question is a client’s trustworthiness and whether or not they would actually pay off the loan before its maturity. This is where your educational background, professional experience, and references come into play, so make sure to mention any important/impressive information that will show lenders that you have a great reputation.


2) CAPACITY: This refers to the applicant’s ABILITY to pay off the debt. When filling out the application you must mention exactly how and when you plan on repaying the loan, this means including details such as business revenues, expenses, and operating cash flows. It is helpful to mention such information because lenders want to know everything about your sources of repayment. Lenders will also look through your business and personal credit history because it is considered to be a good indicator of your future payment performance.


3) CAPITAL: This refers to the applicant's NET WORTH. Lenders are interested in knowing whether or not you have personally invested in the business because it shows how much you have at risk as well as reflect the amount of dedication you have. In addition, it may also lessen the chance of default. Lenders view this as, why should we invest in your company if you haven’t done so yourself?


4) COLLATERAL: This refers to any of the applicant’s LARGE ASSETS or properties that could be used to secure the loan. To put it simply, this is a fallback payment method in which lenders will receive your assets if you are unable to repay the loan. Another security measure includes someone else signing a guarantee, promising to pay off the loan if you cannot do so yourself. Many lenders actually require both a guarantee and collateral in order to secure a loan. Therefore, while filling out your application make sure to mention any assets that you are willing to put up as collateral and state another party who is willing to pay off the loan for you.

5) CONDITIONS: This refers to the general business conditions, economic and/or environmental, which will affect the applicant’s ability to pay off the loan. An example may be volatile inflation rates or bad weather conditions. Make sure to mention any possible circumstances in which business conditions could affect your repayment.

By keeping these 5 Cs of credit in mind and mentioning them in your application, lenders will definitely get a better sense of your creditworthiness. Therefore, improving your chances of loan acceptance! Get your business officially up and running! All of us here at Collab Space would like to wish you the best of luck!

Hi there!

My name is Maryan Ali and I’m a business student from the University of Ottawa, specializing in the field of finance. While working as a summer intern here, I eagerly jumped at the chance to write educational blog posts for the company. The purpose of these blog posts is to help start-up entrepreneurs gain a little more insight on important business topics. Being a finance student myself, I write with hope of shedding some light on interesting financial topics that could benefit our readers. Thanks so much for reading!

-Maryan Ali



  1. Peavler, Rosemary. Demonstrating the Creditworthiness of your Business to a Bank. Retrieved on May 7th, 2014 from:
  2. Investopedia. (2014). Five Cs of Credit. Retrieved on May 7th, 2014 from:
  3. MBDA. 5 C’s of Credit Analysis. Retrieved on May 7th, 2014 from:
  4. Corporate Finance, by Ross, Westerfield, Jaffe, and Roberts (Sixth Canadian Edition), McGraw-Hill Ryerson, 2011