What You'll Learn
When evaluating a borrower’s creditworthiness, the 5 Cs offer a comprehensive framework that benefits both lenders and borrowers. Capacity ensures the borrower has sufficient income or cash flow to repay the loan, reducing risk for the lender. Capital, the borrower’s own investment or net worth, demonstrates commitment and financial stability. Collateral provides a safety net, offering tangible assets that can secure the loan and lower the lender’s exposure. Conditions — such as the loan’s purpose and the broader economic climate — help tailor terms that are favorable and realistic for both parties. Finally, Character, reflected through credit history and reputation, builds trust and indicates reliability. Together, these five elements create a balanced and thorough approach to responsible lending and borrowing.
Topics covered in this session
- 5 C’s of Credit Defined
- Capacity
- Capital
- Collateral
- Conditions
- Character
- How are these used to determine if borrower is creditworthy
About the Author:
A frequent speaker, instructor, advisor and writer on credit risk and commercial banking topics and issues, Martin J. "Dev" Strischek is principal of Devon Risk Advisory Group based near Atlanta, Georgia. Dev advises, trains, and develops for financial organizations risk management solutions and recommendations on a range of issues and topics, e.g., credit risk management, credit culture, credit policy, credit and lending training, etc. Dev is the former SVP and senior credit policy officer at SunTrust Bank, Atlanta. He was responsible for developing, implementing, and administering credit policies for SunTrust’s wholesale lines of business--commercial, commercial real estate, corporate investment banking, capital markets, business banking and private wealth management. Prior to SunTrust, Mr. Strischek was chief credit officer for Barnett Bank’s Palm Beach market. Dev is also a member of the Financial Accounting Standards Board’s (FASB’s) Private Company Council (PCC).
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