Master the 5C’s of Credit & Risk Management Process
While a “C” average may feel middle of the road on an academic scale, getting hold of the five C’s of credit is the key to getting funding from banks & other financial institutions.
The five C’s or characteristics of Credit & Risk Management are
- Character
- Capacity
- Capital
- Conditions
- Collateral
However, there aren’t any strict guidelines – different lenders may place more value on certain attributes. Online lenders also use proprietary algorithms to determine a borrower’s creditworthiness by analyzing finances and other data, such as social media accounts.
The key to small-business success is focusing on things you can control
Here are the five characteristics and tips to putting your best foot forward

Character Credit & Risk Management
This is basically a lender’s opinion of a borrower general trustworthiness, credibility & personality. Banks want to lend to people who are responsible and keep their commitments. “Character is something you can control and promote, but only if you have a bank that cares about relationships.
Capacity/Cash Flow Credit Management
It is basically your ability to repay the loan. A business must generate enough cash flow to repay the loan. Loans are a form of debt and they must be repaid in full. It is basically assessed by means of financial metrics & benchmarks like credit score, borrowing & repayment history.
Capital Credit & Risk Management
The amount of money invested by the business owner or management team. Banks are more willing to lend to those who have invested some of their own money into the venture. Most lenders are not willing to take on 100% of the financial risk, so it helps borrowers to have some “skin in the game.” From the amount of money the borrower or management team has invested in the business.
Conditions Credit & Risk Management
How the business will use the loan and how that could be affected by economic or industry factors. To ensure that loans are repaid, banks want to lend to businesses operating under favorable conditions. They want to identify risks and protect themselves accordingly. From a review of the competitive landscape, supplier and customer relationships, and macroeconomic and industry-specific issues to ensure that risks are identified and mitigated.
Collateral Credit Management Process
They are basically assets that could be pledged. Collateral acts a backup source if the borrower cannot repay a loan. From hard assets such as real estate and equipment; working capital, such as accounts receivable and inventory; and a borrower’s home that also can be counted as collateral.