The five Cs of credit. To begin the credit process, we need a framework to assess the credit worthiness of the borrower. We begin with some top level questions. Who is the borrower? How much do they want to borrow? What is it for? How long is it for? We then drive down into some details about the borrower. What industry are they in? How have they performed financially? Do they have a good management team? What exactly do they need the money for? How will they pay it back and what exactly is the repayment source? Finally, there are lender considerations. What is the borrower contributing? Can any assets be used as collateral? How will the loan be structured? What are the loan covenants that will be put in place to help monitor the loan? Lenders have been considering these questions as long as loans have been made. These considerations can be classified into what are known as the five Cs of credit, the governing framework for considering credit worthiness from large corporations all the way down to individual borrowers. They are character, capacity, capital, collateral and conditions. Character, good or bad history of repaying debt and interest on time. Two, capacity. Their ability to repay. Three, capital, what contribution is the borrower making to the purchase or acquisition? Four, collateral. What assets can be repossessed in the event of a default? Five, conditions. The purpose of the loan, the cost and the tenure.