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Bottom Line Up Front

  • When you apply for a business loan, consider the 5 Cs that lenders look for: Capacity, Capital, Collateral, Conditions and Character. 
  • The most important is capacity, which is your ability to repay the loan.

Time to Read

2 minutes

May 17, 2022

Are you planning to apply for a business loan? No matter where you apply, there are 5 key factors that lenders look at to score your loan application, judge your creditworthiness and set your interest rate.

What are the 5 Cs of credit?

Lenders score your loan application by these 5 Cs—Capacity, Capital, Collateral, Conditions and Character. Learn what they are so you can improve your eligibility when you present yourself to lenders. 

  1. Capacity. To evaluate capacity, or your ability to repay a loan, lenders look at revenue, expenses, cash flow and repayment timing in your business plan. They also look at your business and personal credit reports, as well as credit scores from credit bureaus such as Equifax, Experian and TransUnion. This is because the way a person handles personal credit and their own credit cards often shows how he or she will manage business credit. Another important metric is debt-to-income ratio, or DTI, which describes your outstanding debt compared to how much you earn. The lower your DTI, the better your liquidity, and the more likely you’ll keep up with timely payments.
  2. Capital. To get a line of credit, you’ll need to show that you have capital—some of your own money or money from partners—that you can put toward startup or acquisition costs. Think of it as a down payment to show you’re serious and capable.  
  3. Collateral. If you fall behind on loan payments, financial institutions want to make sure you have collateral, or another source of repayment for the loan. Your loan application should include real estate or other things that could be sold if you fall behind on debt payments.
  4. Conditions. Lenders want to be sure there’s a market for your business. Make sure your business plan proves that you will be successful based on economic conditions, competition, industry type and your history as a small business owner.
  5. Character. This includes your education history, business background and personal credit history. Include any references or other information about your financial situation. It helps if you and your staff have a good reputation in your industry.

The 5 Cs Checklist

Before you make your loan request, ask yourself these questions to make sure you’ve addressed all 5 Cs in your loan application and business plan:

  • Is my business following all local, state and federal laws and regulations?
  • Have I studied my competition and industry trends?
  • Am I providing a needed product or service?
  • Am I committed to making my business succeed?

Next Steps Next Steps

  1. You can get help crafting your business plan in preparation for seeking a loan from counselors at, the Service Corps of Retired Executives.
  2. The U.S. Small Business Administration offers 5 steps for building business credit quickly.
  3. Navy Federal Credit Union offers a variety of business credit services, from real estate loans to business lines of credit.


This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.