Question

mention and describe the Five C's of Credit

Answer 1

Five C's are as under:

1. Capacity: lender must ensure the ability of borrower to repay the loan, in this scenario cash flow is determined that how much borrower is able to withdraw for repayment.

2. Capital: In this scenario, lender must ensure the investment of borrower in business in order to determine is owned net worth/capital.

3. Conditions: It refers to conditions of loan alongwith economic factors that may affect the borrower's business.

4. Character: It refers to the goodwill or reputation of the borrower,it consist of previous history, discussion with creditors, timely payment etc.

5. Collateral: Most important part of a loan is collateral that means pledging of assets for taking loan and in case of non payment of loan by borrower, it could be dispossed by the lender.