Using qualitative and quantitative measures, lenders utilize a review process called the “five C’s of credit” to evaluate a borrower.

They include an evaluation of the borrower’s character (trustworthiness or reputation); capacity (borrowing history and repayment track record); capital (the level of capitalization and how much money is invested); collateral (while cash flow is very important, a lender will evaluate a secondary source of repayment or the value of an individual’s or company’s assets); and conditions (what are current economic conditions, and how is the company or individual doing?). In small teams or in pairs, compare and contrast each of the five C’s, and discuss whether you believe each is an accurate assessment of a borrower’s ability to pay. What additional criteria, if any, would you include?