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-- The Five C's of Credit
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It's the most common question business owners ask their banker:

"What are you looking for from me and my business if I need to borrow?"

While each lending situation a bank reviews is unique, most banks utilize some variation of  "The Five C's of Credit" when making credit decisions - Character, Capacity, Capital, Conditions, and Collateral.

Character

Banks want to put their money with clients who have the best credentials and references. The way you treat your employees and customers, the way you take responsibility, your timeliness in fulfilling obligations - that's character.

Capacity

What is your company's borrowing history and track record of repayment. How much debt can your company handle? Will you be able to honor the obligation and repay the debt? There are numerous financial benchmarks such as debt and liquidity ratios that banks use before advancing funds.

Capital

How well capitalized is your company? How much money have you invested in the business? Banks want to see that you have a financial commitment; that you have put yourself at risk in the company.

Conditions

What are the current economic conditions and how does your company fit in? If your business is sensitive to economic downturns, the bank wants to know that you are good at managing productivity and expenses.

Collateral

While cash flow will nearly always be the primary source of repayment of a loan, bankers look at what they call a secondary source of repayment. Collateral represents assets that the company pledges as an alternate repayment source for the loan. Hard assets. Most collateral is in the form of real estate and office or manufacturing equipment. Your accounts receivable and inventory can also be pledged as collateral. Unless you're a business with a proven payments track record, you will almost always be required to pledge collateral.

All loans subject to credit approval.

The article you read was prepared for general information purposes by McMurry. These articles are for general information purposes only and are not intended to provide legal, tax, accounting or financial advice. PNC urges its customers to do independent research and to consult with financial and legal professionals before making any financial decisions.These articles may provide reference to Internet sites as a convenience to our readers. While PNC endeavors to provide resources that are reputable and safe, we cannot be held responsible for the information, products, or services obtained on such sites and will not be liable for any damages arising from your access to such sites. The content, accuracy, opinions expressed, and links provided by these resources are not investigated, verified, monitored or endorsed by PNC.