Posted by & filed under Credit Ratings, Credit Score, Five C's of Credit.

What are the ‘Five C’s of Credit’

The Five C’s of Credit is a method used by lenders to determine the credit worthiness of potential borrowers.

The system weighs five characteristics of the borrower, attempting to gauge the chance of default.

The Five C’s of Credit are:

  1. Character
  2. Capacity
  3. Capital
  4. Collateral
  5. Conditions

Banks use rigorous policies and analyses when determining if and how much money to lend to clients. The methods used by banks are often summarized by categorizing lending analysis as the Five C’s of Credit. The Five C’s of Credit are character, capital, capacity, conditions and collateral. Banks use the Five C’s for specific reasons respective to each category, but all are utilized to understand the risk of default on a loan.


It is important to a bank to have significant comfort with the character of its prospective borrowers. Indicators such as credit rating and borrowing history coupled with more qualitative factors such as honesty and integrity all support a case for a borrower’s willingness and ability to repay a loan.


A bank needs to understand the capital position of the prospective borrower’s business or personal wealth. More capital represents the borrower’s ability to withstand volatility. It also demonstrates the commitment an owner of a borrowing entity maintains. A strong capital position reassures a lender of repayment capacity in a borrower.


Understanding capacity to repay a loan is critical for a bank during the underwriting process. Capacity is determined by the borrower’s ability to generate cash flow to service the interest and principal on the loan. Strong cash flow from borrowers’ normal business activities demonstrates capacity to repay debt and mitigates the probability of default.


A bank must also understand the broader market conditions affecting the industry, segment, market and overall economy in which its borrowers engage in commerce. Strong industry growth or economic conditions support a business’ ability to generate cash and repay debt.


Lenders often take a lien on borrower collateral. In the event a borrower is not able to repay debt with its cash flow, a lender must rely on the quality and sale ability of borrower collateral to repay the loan. A robust analysis of the collateral supporting a loan is an important step in granting a loan.

Don’t Judge A Book By Its Cover

Just as you shouldn’t judge a book by its cover, at BitX Funding we don’t believe in judging a small business’s creditworthiness by any single metric. If we did, we might miss out on an opportunity to read a really great book!

While some data points have specific restrictions, everything is always taken in context. For example, we understand that the standards for a “good book” vary across different genres. Just as a crime-thriller novel doesn’t need the same character development as a memoir, a software company doesn’t necessarily need the same kind of asset coverage as a retail location. It’s also difficult to define a “good book” in an entirely objective manner. Different readers have different preferences, and some investors are willing to accept higher risk options in exchange for larger potential yields.

But while we never recommend anyone buys a book based solely on the cover art, we do use the business owner’s personal credit score to tell us if it’s worth taking the book off the shelf and reading the synopsis on the back. For that reason, we require a minimum 520 FICO score, 100K in revenue and at least 1 years of operating history to be eligible for a BitX Funding loan. For startups or business with less than 100K in revenue we can look to FICO lending or credit card stacking.  With FICO lending the minimum FICO score is 690 with no prior revenue and one day in business.

Let Us Help

BitX Funding is the online market place for small business owners looking to fund a project through startup financing.

We specialize in connecting small business owners with lenders who will compete for your business. We believe small business owners drive the economy and we are passionate about helping your company reach its full potential.

You can reach a loan specialist by toll free at 1-800-824-2407, or email at or applying online here and we can guide you on which loan is the best fit for your business.

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