The 4 Cs of Credit

Week 7
(question 17)

Most businesses need credit at some point, either as start up funds, or expansion funds. A business's creditworthiness is largely dependent on what has come to be known as the 4 C's of credit.

The Four Cs of Credit are:

-Character: size, location, years in business, structure of business, number of employees, principals, media coverage, past or pending lawsuits, stock performance.

-Capacity: this deals with cash flow, and the ability of a company to pay its bills. Also includes debt of a company, whether that debt is secured or unsecured. Also, if the business has any unused lines of credit.

-Capital: assesses whether or not a company has the resources to pay its creditors. Capital is scrutinized most closely during credit analysis (along with cash flow).

-Conditions: things external to a business can effect the business. market flucuation, industry growth, currency rates, and even politics. (i'd like to think the media is an external factor that can help set the conditions of how well your product or service sells).


Probalby the most important of the four is Capitial... as it includes cash flow, sometimes lumped with capacity. If you don't have the capital, chances are your business is not credit worthy.