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The 5 C's of Credit

While a ‘C’ average may feel middle of the road on an academic scale, addressing the five C’s of credit is critical to obtaining funding from banks and other financial institutions.

The 5 C’s is not a strict policy used by the banks, but is more a framework used by lenders to understand the business.

Here we will explain the five C’s, what it is, how it matters and other key points.


In any business the management team behind the business will determine the success of the business.

In today’s environment management is key to ensure the business adapts to changes and addresses the key fundamentals to ensure the business continues to grow.

Banks want to lend to people that are trustworthy, creditable and demonstrate a sound knowledge of their business and the outside factors that could affect them.

Capacity / Cash Flow

In simple terms, is the ability of the business to generate enough cash flow to meet its monthly commitments and ultimately repay the debt.

Traditionally cashflow / capacity is assessed from historic financial data determining ratios and metrics.

However up to date management accounts and projected cash flow forecasts, will assist when additional finance is sought and the capacity to meet current commitments cannot be demonstrated via historical figures.


The amount of funds invested by the business owners.

Most Banks would like to see the owners contribute their own funds towards the business or another of way of saying it, is for the owners to have ‘skin in the game’.

On occasions we will be approached by clients to assist purchase a business who will have minimal capital to invest, as they have reduced their existing personal debt and improve the equity in their property.

With this example the reduced capital position is acknowledge, however the important factor is the equity position in the property, if additional capital is sought via a lender.


How the business will use the funds, how the facility is structured (term / repayments) and how the business performance can be impacted by economic or industry factors.

When considering funding options, it is important to preserve the cash flow of the business.

We do this by structuring suitable repayments over the longest period possible, with the minimum repayment, while always ensuring the clients have the flexibility to make additional repayments.

While you can’t control the economy and other industry factors, you can however by aware of current factors, educate yourself and plan for potential impacts.


Assets pledged as security to support the debts.

When considering the collateral available, we will take into account not only the bricks and mortar security, but will consider existing equipment and the value of the business in regards to the inventory and accounts receivable (debtors).

Based on the collateral being provided as security we can then structure different finance solutions to meet the business needs.

Our local experts will continue to use the 5 C’s as a framework to ensure the best outcome for our clients.

If you are considering additional finance to expand your business, require assistance with cash flow, purchasing a property or simply would like a full review of your current facilities, please request a meeting with one of our consultants.

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