By Chris Merritt

Character

Capacity

Capital

Conditions

Collateral

Confidence

C C C C C C

Six C’s

$ Character$ Capacity$ Capital$ Conditions$ Collateral$ Confidence

CharacterIs measured by:$ A person who is responsible and lives

up to agreements $ Pays bills on time$ Trustworthy$ How long you have lived at your current

address$ Length of time at your current

employment

CapacityIs measured by:$ Ability to repay the loan$ How will the loan money be used$ Cash Flow- will there be enough cash to

repay the loan$ What other sources do you have available

to repay if you lose your income$ Does the monthly loan payment represent

32% or less of your monthly income

CapitalIs measured by:$ How much money a person owes versus

how much a person earns$ A good measure is earn more than you

owe$ You should have enough money to

ensure payment of another bill$ It’s the money you have invested; also

called your down payment

Conditions Is measured by:$ How much money you are requesting$ What will the money be used for$ What will be the length of the loan$ Your ability to help your banker

understand your plan$ Stability in where you live and your job

$ What you own of value that can be used to back the loan

$ It can be taken away and sold to payback the loan

$ Examples would be a car or a house$ The collateral will need to be large

enough to cover the losses if your business fails to repay the loan

CollateralIs measured by:

ConfidenceIs measured by:$ How you answer questions $ Good decisions and reasons in your

replies$ Good credit and payment history$ Professional $ Honest Reputation$ Stability$ Addressing all the lenders concerns

Most Important of the Six C’s

Capacity – ability to repay

$ Lenders want to make sure that a person has the income to payback the money borrowed.

$ It is important that you show the lender what your cash flow picture looks like.

$ Lenders want to know how they will be repaid for the money they let you borrow. Therefore they want to know all sources available that you will use in repaying the loan.

Credit Worthiness:

Lenders use the Six C’s as a criteria to help them determine the risk of the loan. It is not an automatic formula, but a variety of factors that help to determine the risk of the borrower to the financial institution.

Summary:

$ Financial institutions use some form of the Six C’s in the credit evaluation process.

$ They like to lend money because that is the way that they make money.

$ They only want to lend money to someone who can repay the loan in full and on time.

Sources:

$ www.powerhomebiz.com/vol2/6c-credit.htm

$ www.cbmfoundation.org$ www.Debtwarriors.blogspot.com$ www.smallbusinessbible.org/

sixcs_credit.html$ www.smallbusinessadvocate.com$ www.creditguru.com/4Cs.Shtml