Glossary · Reading the business
5 Cs(Character, Capacity, Collateral, Capital, Conditions)
In short
The 5 Cs are the fundamental criteria lenders use to evaluate your creditworthiness and the viability of your loan application. They assess your ability and willingness to repay.
What it means in a deal
For an SBA 7(a) loan, your lender will scrutinize each of the 5 Cs. Character refers to your track record (credit report, good character). Capacity is the business's ability to generate cash flow for debt service. Collateral is what secures the loan. Capital is your equity injection, and Conditions are the overall economic and industry factors.
Official sources
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 — Lender and Development Company Loan Programs
U.S. Small Business Administration · SBA Standard Operating Procedure
Last checked 2026-06-15. Official sources control — verify before relying on any rule for a live deal.
Related terms
Common questions about 5 Cs
- How long does an independent business valuation typically take for a $1.5 million acquisition?
- If I refinance my SBA 7(a) loan after 5 years, do I still face prepayment penalties?
- When is an E-Tran modification required for a final loan amount change less than $5,000?
- What if the seller is retaining a small percentage of ownership (e.g., 5%) after the sale?
- Can a seller note with a 5-year full standby period be considered part of the equity injection?
- Will a past bankruptcy (e.g., Chapter 7 discharged 5 years ago) automatically disqualify me from an SBA 7(a) loan?
Defined by CapBench SBA Intelligence — plain-English definitions for business buyers, lenders, advisors, and AI agents, grounded in public SBA rules and records. Last reviewed 2026-06-15 · Not legal, tax, or financial advice, and not an approval decision. Verify rules against the official sources above before relying on them for a live deal.
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