The 5 C’s of Credit Explained

5cs of credit chess pieces

Determining your company’s creditworthiness can feel like looking into a crystal ball. Although you might know some of the basics, it’s important to understand the 5 C’s of credit and how they make all the difference when you apply for business financing. 

The 5 C’s determine if your company has solid financials and is worthy of financing. They consist of your company’s character (credit history), capacity, capital, collateral, and the conditions of any loan offered. These key indicators help lenders get a rough sketch of whether your business is creditworthy — or if there is a risk that you won’t be able to repay your debts.

Before we go into explaining each component, we want to let you know that there are tools available to help you monitor cash flow and your overall risk profile. PayPie’s cash flow forecasting and risk assessment help you perform your own evaluation of your 5 C’s.

Breaking down the 5 C’s of credit

Lenders review mountains of credit applications every year, and statistics point toward this mountain growing even higher in the coming years. As a result, there’s just not enough time to go beyond the 5 C’s to evaluate your company’s credit risk.

The components represent the major determinants of your credit risk. Each element details how you manage finances, pay back lenders, and what would-be lenders can offer you. Here’s what each of the 5 C’s of credit means and how they impact your creditworthiness:

1. Character (credit history)

When lenders look into your company’s character, they’re determining your trustworthiness as a borrower. These factors consist of business experience, financial acumen, educational background, and a good track record of paying back any previous or existing debts. This is where your personal and professional accomplishments can make an impact. The more you’re able to convince lenders that you’ve got what it takes to build (and maintain) a successful business, the better your character appears.

Don’t be shy about your credentials if you want to ace your company’s character assessment. Mention any successful businesses you’ve started in the past, educational achievements, and prior instances where you’ve paid off loans on time. Include high-quality references from prior business associates and detail the professional experiences that you, your business partners, and employees have (especially if they’re brag-worthy).

2. Capacity

Capacity evaluates your company’s cash flow, and whether or not it has the capacity to repay the loan. Lenders don’t want to finance a business that may not have the income or resources to make repayment a sure thing. Lenders will look at the cash flow statements your company submitted as part of your loan application. They may also look at how long a company has been in business as a determinant of its financial health.

Read More: How Business Financing Options Affect Credit 

5cs of credit strategy coming together

3. Capital

Lenders like it when business owners invest some of their own money to get their company up and running. It signals that the founders are committed to their venture’s success. If you have not made a personal investment in your company (if you launched with external capital or startup funding, for example), you may not represent the kind of capital commitment most lenders would want to see.

4. Collateral

In addition to capital, lenders also want to know what assets you can use to secure your loan. Collateral can consist of liquid assets (your company’s cash), equipment, real estate, unpaid invoices, or other property. Secured business loans require collateral in exchange for approval, which allows your lender to seize your assets in the event that you can’t pay what you owe.

Not every loan requires collateral, however. Unsecured business loans give borrowers access to cash without offering their company’s assets in return. These loans are often easier to obtain than secured business loans, but require personal guarantees of repayment from applicants (meaning that you’re going to pay personally if your business can’t).

5. Conditions

Loan approval doesn’t only boil down to company success, personal accomplishments, character, or available collateral. It also depends on the purpose of your loan, as well as the overall stability of your company. These are also known as a loan’s conditions.

For example, the conditions of your loan appear more stable if you’re using it to buy the materials need to fulfill purchase orders. If you’re looking for general working capital to cover operating costs; however, your conditions may be less desirable. The logic behind these decisions has to do with whether or not your company’s underlying financials are strong.

Financing new business opportunities for a successful company is much different than financing operational costs for a business that might not be turning enough of a profit on its own. The former is less risky than the latter, which is more appealing for lenders.

Learn More: How Business Credit Cards Affect Personal Credit 

The bonus C: Communication

Communication is also a determining factor of whether or not you’re a good business partner. Conveying your company’s challenges and opportunities during the loan application process shows transparency and helps build trust between you and your lender.

The 5 C’s of credit and cash flow

Cash flow is the essential component that makes your company’s 5 C’s of credit shine. Capacity is all about measuring whether or not your company has enough liquidity to support a loan — making cash flow an essential part of the equation. 

Without positive cash flow, you’re going to have a tough time getting credit. The basis of good credit begins with solid financials — here’s why it pays to keep on top of your cash flow before you seek financing.

Managing cash flow helps you:

1. Demonstrate capital

As we’ve discussed earlier, capital is a major determinant for lenders when they review loan applications. You will need to provide as much information as possible about how much money your company has available, along with any other liquid assets. Cash flow management helps you keep track of your capital, which makes it easier for you to provide insights to your lender.

One thing to keep in mind is that there are lending options that don’t look at capital the same way that traditional term-loans or revolving lines of credit do. Asset-based lending, like invoice factoring and financing, let you use your outstanding invoices as collateral to access funds quickly and easily.

2. Keep debts organized

Lenders want to know how well you’ve handled debt in the past, as well as your capacity to repay new or existing loans. You can use cash flow management to track repayments, forecast future loan-related expenses, and monitor your own capacity to take on additional debt. You’ll be doing yourself a favor by staying organized. Your loan applications will also be all the more attractive as a result.

3. Create better revenue projections

Conditions are a crucial decider of creditworthiness. As such, your company’s revenue projections play a role in evaluating the risks and opportunities you might encounter in the future. The best way to anticipate future revenue is by monitoring your cash flow over time.

PayPie’s cash flow forecasting tool helps you better understand where your money is coming from, where it’s going, and what your company’s financials might look like down the road.

4. Answer questions during the application process

Loan application reviews are extensive, and borrowers need to be ready to answer questions about their business throughout the process. The best thing you can do is be prepared. Monitoring your cash flow can help answer common questions about your company’s current revenue, revenue projections, and operating finances. You’ll have answers if you monitor your cash flow on an ongoing basis, rather than piecing together financial information as questions arise.

The 5 C’s of credit may determine your company’s creditworthiness. You can set yourself up for success by keeping on top of your company’s cash flow.

The best way to begin is PayPie’s cash flow forecasting tool, which integrates seamlessly into your QuickBooks Online account (integrations with other bookkeeping platforms are coming soon).

Sign up, connect your business and run your free report! 

Best of all, the tool includes a proprietary risk score, which gives you further insights into your company’s attractiveness to lenders.

This article is informational only. It does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional.

Images via Pexels. 

PayPie Joins the Enterprise Ethereum Alliance

VANCOUVER/BC, CANADA – March 2, 2018 – PayPie announced today that it joined the Enterprise Ethereum Alliance (EEA), the world’s largest open source blockchain initiative with over 400 member companies. PayPie joined EEA to enhance its contributions as a trusted leading enterprise in the blockchain industry and to support the adoption of Ethereum-based technology in the enterprise world.

As a member of the EEA, PayPie will collaborate with industry leaders to help spread the benefits of trust and transparency brought by the blockchain to industries worldwide. EEA’s membership represents a wide variety of business sectors from every region of the world, including technology, banking, government, healthcare, energy, pharmaceuticals, marketing, and insurance, as well as a number of fast-growing Ethereum startups. The EEA’s wide range of vendor-led, industry-specific application layer working groups and committees are committed to increasing the adoption of Ethereum technology in the enterprise.

“We are always searching for new ways of strengthening the blockchain technology community as a whole and of growing our own partnerships ecosystem with organizations that bring new synergies to the platform. The support for blockchain improvement and adoption must be constant to enable fintech companies like PayPie to expand and bring value to an ever-growing business audience eager for credit disruption,” said PayPie’s CMO Yohan Varella.

About PayPie

The PayPie platform brings ultimate trust and transparency to the business lending by introducing the world’s first blockchain powered credit risk assessment based on business accounting. The platform challenges Experian, Equifax, and TransUnion’s status quo by assessing businesses credit risk profiles through a built-in algorithm that accounts 150 data points from near real-time financial data-based risk scores hashed on the Ethereum blockchain, hence building a faster, safer, and smart contract-powered credit scoring for banks, lenders, and financial institutions. Furthermore, the platform will introduce its own invoice factoring marketplace in which SMEs and invoices will be rated by PayPie’s unique credit risk score for a trustworthy decision system. PayPie has launched its conceptual Alpha version in January 2018 and has scheduled to launch its Beta version at any time before the end of April 2018.

For additional information about PayPie, please reach out to [email protected] or visit

About The Enterprise Ethereum Alliance

The EEA is an industry-supported, not-for-profit established to build, promote, and broadly support Ethereum-based technology best practices, open standards, and open-source reference architectures. The EEA is helping to evolve Ethereum into an enterprise-grade technology, providing research and development in a range of areas, including privacy, confidentiality, scalability, and security. The EEA is also investigating hybrid architectures that span both permissioned and public Ethereum networks as well as industry-specific application layer working groups. EEA will collectively develop open industry standards and facilitate collaboration with its member base and is open to any members of the Ethereum community who wish to participate. This open-source framework will enable the mass adoption at a depth and breadth otherwise unachievable in individual corporate silos and provide insight to the future of scalability, privacy, and confidentiality of the public Ethereum permissionless network.

For additional information about joining EEA, please reach out to [email protected] or visit


PayPie Credit Risk Assessment to Be Adopted by Debitum Network


VANCOUVER, Canada, February 9, 2018 – PayPie and Debitum Network announced today that the business credit risk assessment powered by blockchain technology provided by PayPie will be adopted by Debitum Network as its dedicated blockchain-based risk score provider for business loans exclusively for businesses in North America.

The PayPie and the Debitum teams have come to an agreement for developing a partnership with joint interests in expanding their array of benefits to broader audiences across platforms. Debitum’s CEO, Mārtiņš Liberts, said that “Debitum aims to tackle the SMEs global loan markets with constant focus on technology innovation and growth, and bringing the PayPie credit risk assessment to scrutinize businesses in North America and beyond will bring even more value to our users by granting additional trust and reliability for them to make better informed decisions.”

The partnership will involve joint efforts toward developing an integration between the platforms so Debitum Network users can directly access the PayPie scores from within the platform for greater convenience. PayPie PPP tokens will be needed for accessing the platform’s credit score, so PayPie and Debitum will agree on initially exchanging PPP tokens for Debitum DEB tokens to seed user adoption. Afterwards, PPP tokens should be directly used by Debitum users or by the Debitum platform for accessing the PayPie credit score and make it directly available through the platform. For that purpose, the Debitum Network may implement DEB to PPP exchange (automatic or manual) while any specific technical solution and integration will be designed on a later stage of the partnership. PayPie will have exclusive rights as being the only blockchain company to provide credit risk assessment and scores to Debitum and to its users and businesses in North America, while Debitum will retain the rights to provide credit risk data from other non-blockchain companies in addition to PayPie’s.

“Developing partnerships with fintech organizations such as Debitum is something that PayPie will constantly pursue as win-win synergies. Debitum users will be rewarded with the most accurate and up-to-date credit risk assessment available on the market through PayPie’s scores based on near real-time accounting data, while the PayPie platform will keep expanding its reach through new markets and audiences to solidify its unique value proposition. Interested parties are always welcome to reach us for the real business use cases in the credit industry”, said PayPie’s CMO, Yohan Varella.


The PayPie platform brings ultimate trust and transparency to the business lending by introducing the world’s first blockchain powered credit risk assessment based on business accounting. The platform challenges Experian, Equifax, and TransUnion’s status quo by assessing businesses credit risk profiles through a built-in algorithm that accounts 150 data points from near real-time financial data-based risk scores hashed on the Ethereum blockchain, hence building a faster, safer, and smart contract-powered credit scoring for banks, lenders, and financial institutions. Furthermore, the platform will introduce its own invoice factoring marketplace in which SMEs and invoices will be rated by PayPie’s unique credit risk score for a trustworthy decision system. PayPie has launched its conceptual Alpha version in January 2018 and has scheduled to launch its Beta version at any time before the end of April 2018.


The Debitum Network is an ecosystem for various SME loans in a decentralized manner that allows organizations and individuals to distribute available capital in SME loans. Debitum offers a hybrid solution – companies’ financing will be executed in fiat – and the platform aims to create a truly decentralized network via motivated communities so it can become a living ecosystem rather than just a mix of individual organizations trying to deal service in a pragmatic approach which works in the real life. Debitum has schedule to launch its first version on the Ethereum blockchain by September 2018.

One Small Step for PayPie, One Giant Leap for SMEs

The lack of transparency in business data keeps most financial advisors, lenders, and investors up at night. And if you are an SME selling on credit, you must be feeling credit stress on a fairly regular basis. The world today needs a solution that can look at financial data and offer tools to ward off fraud to propel businesses to the next level.

PayPie is disrupting the way business is being done. Our credit risk analysis along with blockchain-powered publicly visible Credit Risk Scores is going to help millions of SMEs change their financial expectations.  In a relatively short period, our platform is introducing a product and that has been out of reach to SME’s worldwide.

The alpha version of our platform is officially being launched on January 31, 2018, and we couldn’t be happier about it. Our whole team has been putting the highest effort and care to develop this wonderful way for SMEs to improve their realities. This alpha version will be solely focused on the credit risk assessment side so you can have a good taste of what’s to come.  Alphas are known for being far from perfect, but we are very happy with the way the platform is behaving so far and we hope you will be too.

PayPie will not only analyze accounting data and apply Artificial Intelligence (AI) analytics to see whether a business will succeed or default, but will also support an entire ecosystem. Accountants will be able to give their clients actionable financial insights, lenders will be able to reduce underwriting times and costs, an investor in South Africa will be able to provide credit to a business in USA, all because of our cloud infrastructure powered by blockchain thus opening new doors for endless possibilities that reinvigorate the economy.

I would love to live in a decentralized world, but today we still need to integrate with the pre-existing global economy. That being said, we have already built the core framework that will allow us to focus on USA\Canada first and to expand globally in a scalable way based on our success in these markets. We are starting with the credit risk assessment side of the platform and we will share other details on further services at the right time.

We at the PayPie are very confident and excited about our vision. I have never seen a community and team more inspired, dedicated and talented than the ones we are blessed in having. Collectively, we will bring peace of mind to both SMEs and thousands of our supporters who are waiting for us to change the world.

PayPie, you will like it hot!



Image: StoryBlocks