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
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