The five Cs of credit, from the banker's chair
Ask a banker how they assess a loan and you'll eventually hear "the five Cs" — character, capacity, capital, collateral, conditions. It sounds like a brochure. It isn't. It's genuinely the mental checklist running while your file is open, and most declines trace to exactly one or two of the Cs. Here's each one from the inside.
Character — can you be trusted with the bank's money?
This C makes owners nervous because it sounds like a personality test. It's not. Character is assessed from evidence: your personal credit history, how you've handled past obligations, whether your numbers are internally consistent, and how straight you are about weaknesses. A file that hides its risks reads as either careless or evasive — both are character verdicts. Naming your risks yourself, with mitigations, is the single easiest character point to earn.
Capacity — does the cash flow carry the payment?
The heavyweight. Capacity is your business's ability to service the debt from operations, and it has a number: debt-service coverage. Cash flow divided by loan payments, with roughly 1.25× as the common comfort line. When a lender says "the numbers don't work," this is almost always the C they mean. The fix is rarely bigger revenue projections — it's projections with visible arithmetic, an honest ramp, and a working capital cushion that bridges the early months.
Capital — what have you put in?
Your own money at risk. Lenders read owner equity as commitment made measurable: someone with real savings in the venture will fight for it in a hard quarter. There's no single required percentage — but a request where the owner has contributed nothing is asking the bank to believe in the business more than the owner does. Equipment you already own and cash you've already spent both count; document them.
Collateral — what backs the loan if it goes wrong?
The C owners overweight. Collateral matters, but it's the lender's last resort, not their first comfort — no banker wants to seize a used espresso machine. Address it plainly: what the loan buys, what it's worth, what personal guarantee you're offering. A plan that leans on collateral to excuse weak cash flow has the priorities backwards, and lenders notice.
Conditions — the things nobody controls
The economy, the industry, the season, the street you're opening on. You can't control conditions, but you're scored on whether you've seen them. A tourism business that models winter honestly, a contractor who names interest-rate exposure, a café that acknowledges the chain across the road — these read as operators who won't be surprised. Sensitivity analysis lives here: what happens at 10% or 20% below plan, and what you'd do about it.
Files rarely fail all five. They fail one — usually capacity or capital — and the other four can't outvote it. Knowing your weak C before the bank finds it is most of the game.
Scoring yourself before the bank does
Read your plan as a skeptic and give yourself a hard grade on each C. Where's the evidence for character? Is capacity shown with real arithmetic, or asserted? Is your capital contribution documented? Is collateral addressed without being leaned on? Do conditions include the uncomfortable ones? Two weak answers is normal — and fixable before you apply, which is the entire point of doing this now.
See your file the way a lender will
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Score my plan — freeLenderReady is an educational service, not a lender, broker, or financial advisor. Lending criteria vary by institution and change over time; treat this as a starting point, not a guarantee.