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The 5 C’s of Business Credit

Learn the 5 C’s of Business Credit If you have ever applied for a commercial…

Learn the 5 C’s of Business Credit

If you have ever applied for a commercial loan, the term “business credit” has likely come up during the process. Establishing good business credit can make the difference in securing the funding your company needs, whether you’re hoping to rent office space, set an expansion into motion, or just keep cash flow moving. That’s because business credit shows financial lenders that your business will be a trustworthy partner who will follow through with agreed-upon loan repayments.

But how is good business credit actually measured? Like many financial institutions, Penn East Federal Credit Union considers the 5 C’s of credit when deciding how to respond to a loan request: 

  1. Character: How the business and the principals of the business (owners) have performed on their previous debt obligations. Among other factors, checking the business’s character involves reviewing its credit history or credit score.
  2. Capacity (Cash Flow/Debt Service): The company’s ability to repay debt, termed “cash flow” by most lenders. A low debt to income ratio indicates that a business has a healthy cash flow and will feasibly be able to meet the terms of the loan agreement. 
  3. Collateral: The company’s ability to make payments when unforeseen circumstances arise that would diminish capacity. In effect, reviewing collateral means evaluating what “back door” or safeguard method of payment the business can put in place. 
  4. Capital: The amount of money the business plans to put toward a financial investment. A healthy capital investment establishes the business’s commitment to the project.
  5. Conditions: The current economic conditions as they influence the loan and the business in general. Examining the business’s ability to sustain a downturn in the economy may also be a part of this consideration.

Ultimately, Penn East utilizes the 5 C’s of credit to build strong, long-lasting partnerships that will help businesses in Lackawanna, Luzerne and Wyoming Counties area grow and succeed. Penn East offers several types of business loans including commercial and investment real estate loans, term loans and lines of credit. 

To further explore Penn East’s business lending products, visit