The Three Cs Of Credit And How They Impact Your Loan

Before you place an application in front of a lender, you want to be able to understand the process of approval, how the lender makes the decision on who a loan should be given to and whose application should be rejected.

By gaining this understanding, business owners are better able to tell what factors were responsible for our business loan rejection and what they can improve upon to increase their chances of approval.

The Three Cs of credit, represent those factors that lenders use to determine whether they should give you or your business a loan or not. It helps them estimate the risk of lending to you as a business.

The Three Cs stand for Capacity, Capital and Character.

Let’s take a look at what these factors mean:

  1. Capacity– Can you repay the loan? The main question that this factor wants to determine is, whether you or your business has the ability to repay the loan when given to you. To determine this the lender assesses your debt to income ratio, cash flow, business expenses and any other existing loans that may impede your ability to repay the loan.
  2. Capital– What amount of loan is suitable for your business? The second factor, lenders would look at when determining whether you should be given a loan is Capital. Lenders need to be able to estimate the net worth of you as an individual or a business to be able to ascertain the amount of loan you can manage. Where your net worth is significantly lower than the loan amount, and you’re required to provide collateral you would most likely default compared to when you have a higher net worth.
  3. Character– Now the third factor, lenders use to infer your creditworthiness is your character. And I don’t mean character as in your outward behaviour or appearance. By character, I mean your reputation or track record of loan repayment in the past. Were you able to repay your loans on time? Did you prove difficult to lenders trying to recover their money? For your loan request to be approved, a lender must be able to convince him or herself that you’re honest, reliable and have integrity.


Now that you know what the Three Cs are, you should be able to use these factors as a metric to evaluate yourself prior to presenting your application to a lender. You should know.

So know your net worth and know what you should be asking in loan.