The five Cs of credit

Financial institutions provide financial services to their clients. These financial services include loans, investment advice, and safekeeping of money and other valuables. To make money financial institutions must lend money to their clients. Lending money is a risky business.
The loan officers of the financial institution must be in a position to determine the best client to lend money. The five Cs of credit provide a guide applied by many financial institutions to determine credit worthiness of a loan applicant.
The five Cs of credit
Character
The character of the owner of the local sports organization is important to determine his credit worthiness. The characters of the owner relevant to the business include experience, training and comprehension, financial proficiency and future plans. The experience of the owner is important as it helps understand the capability of the manager under less than optimum conditions. The education of the owner is important; the nature of business demand that decisions making is in an informed manner. This guarantees success for the business. The plans the owner has for his organization in the future are important to help size up the operation. The amount required by the business help the loan officer quantify the amount required (Price, 1990).
Capacity
The capacity of the organization considers the ability of the organization to service debt and meet other operational cost. The liquidity of the local sports organization is directly proportional to capacity. Liquidity is the difference between current assets and current liabilities. The local sports organization must have the ability to generate money to meet the current commitments and still have some profits. The most important factor considered to determine capacity is a healthy liquidity. For a healthy liquidity to be, the income must exceed expenditure. The strategies that the local sports organization employs to get the most out of money are important to understand the future prospects of liquidity (Tucker, 2004).
Commitment
 In commitment, the personal and financial dedication of the owner to his organization is important. The financial institution never risks more than the owner is willing or able to risk in his business. The maximum the financial institution can risk is 50% of the owners risk. The more the owner has risked, the better his position because the financial institution is less at risk. The personal commitment include the lifestyle choices of the owner and how much time he spends running the sport organization (Price, 1990).
Collateral
Collateral often include fixed assets such as premises, machinery, and vehicles. The collateral ensures the lenders money is secure back regardless of the outcome of the business venture. To safe guard against losses the loan officer must determine the value of possible collateral that the local sports organization own. While choosing collateral easy to liquidate assets are better. The value of the collateral over the time of the loan repayment is important. Some assets, such as vehicles depreciate over time. Collateral such as this can lead to losses in case of payment failure (Tucker, 2004).
Conditions
Condition refers to the situation of the market in which a business operates. For the local sports organization the sports market both local and international is important to determine the success of the business in future. The consumer trends are also important because the consumers consume the products and services produced by the organization. Of all the criteria required for a loan, condition is the only criterion that is independent of the borrowers will (Price, 1990).
Conclusion
The five Cs cover the most important factors considered by a financial institution before lending money to an individual or organization. Each financial institution employ a variant of the five Cs while determining the credit worthiness of a borrower. The financial institution also considers the history of the borrower with the institution more strongly than the other factors.
 References
Price, P. P. (1990). The five "C's" of lender liability avoidance. (Order No. 1341978, The Stonier Graduate School of Banking). ProQuest Dissertations and Theses, 56-92 p.
Tucker, R. (2004). CREDIT WORTHINESS. WWD, 188(104), 24.