There are 5 basic principles for lending known as the 5 C’s. They are:
Character: The borrower’s willingness to repay, his honesty and integrity.
Capacity: Ability to successfully run the business and repay the borrowed amount out of the profits of his business.
Capital: How much own money he has put in the business and how much he has saved from his earnings so far. It is called the net worth.
Collateral: The security offered to the bank as cover for the advance, so that if the borrower does not pay the dues, the bank can recover it by selling the security; the security should have stable value and should be easily marketable.
Conditions: The changes that are constantly occurring in the economy which may affect the borrower’s business.