Sure, you’re charming, hard-working, and a snappy dresser. And you run one heck of a wonderful business. But how do you stack up against the 5 C’s?

And what are the 5 C’s, you ask? Well, they’re a guide for lenders — like those at Kerndt Brothers Bank — to see if you’re a good financial risk.

These 5 C words help assess your business creditworthiness. Using both qualitative and quantitative factors, the five C’s are a quick way for bankers to gauge if they should extend credit to your company. Lenders need to know if you’re more likely to pay them back or liable to default on a loan. The 5 C’s help them decide. So, in alphabetical order, here are the 5 C’s:


What is your capacity to repay a loan? A lender must determine if it makes sense to green light a loan for your business. While there are several ways to assess this capacity, the most common approach is to look at your traditional cash flow. This allows us to calculate your company’s debt service coverage ratio.

We look at a company’s net income plus non-cash expenses (i.e. depreciation). Then we examine your term interest expense and divide that by the fixed monthly debt obligations of your company. Taking into account a margin of error, we want this ratio to be 1.2 or higher.


Whenever you can put some money toward a purchase, it shows you have some skin in the game. For example, if you’d like to expand your business, having a sizeable down payment will likely help you secure money.

The same goes for vehicle fleets or business renovations. If you pay a portion of the total, you may get a better loan package. Finally, when you’re willing to offer a down payment, it shows you’re serious about money. Many lenders will take that as a sign of your intention to repay the debt.


What do you own that’s valuable? That’s your collateral. It may be your building, your property, or your business contracts. Whatever your business assets, they’re an assurance to lenders that if you default on your loan, they can take ownership of your collateral.

Often business loans are secured through other property. But collateral comes in many forms: cash, real estate, equipment, or inventory, to name a few. Banks look at this collateral, as well as any debt your business may owe, when making decisions about lending.


You’d like a loan, but how will you use that loan? If you’re borrowing for a specific purpose — construction on a new facility, purchase of manufacturing equipment, hiring new employees — lenders have a clear idea about your intentions.

If, however, you’d like a revolving line of credit, a lender may be a bit more cautious when extending credit. In addition, financial institutions look at the market, current interest rates, and legislation when making lending decisions.

Credit History

What is your relationship with money? Your business credit reports show your character when it comes to debt. Credit reports—from Equifax, Dun and Bradstreet, and Experian— list your corporate financial history from the first time you borrowed money. These analytics show when you’ve paid and how much you’ve paid on every loan. In addition, these reports list any collections, liens, bankruptcies, and other judgments against your business.

The Fair Isaac Corporation (FICO) Small Business Scoring Service collects information about your company and assigns a credit score to you. This information helps lenders make more informed choices as they consider your loan application.

We hope these 5 C’s help explain how banks view potential borrowers. We also believe in a 6th C: Communication. Open communication is the key to all successful financial relationships.

We’d love to discuss lending with you. You can apply by calling or by making an appointment to meet with one of our Business Banking Specialists who can answer your questions or start your application.

Building Iowa

since 1856