Understanding the 5 Cs of Credit: A Guide for CRE Borrowers

Jun 25, 2024

Securing the right loan for your commercial real estate (CRE) project can be challenging. At Atlantic Commercial Lending, we guide clients through this process using the 5 Cs of Credit framework. Understanding these criteria is essential for enhancing your loan prospects.

1. Character

Lenders assess your character to determine your reliability. They look at your credit history and past financial behavior. Consistent, timely payments and a good credit score can positively influence this assessment.

Character also includes your professional background. Lenders may consider your experience in managing similar properties or businesses. Demonstrating a stable and responsible track record can be beneficial.

2. Capacity

Capacity measures your ability to repay the loan. Lenders will scrutinize your financial statements and cash flow projections to ensure you can meet your debt obligations. Key elements include:

Debt Service Coverage Ratio (DSCR): This ratio, which compares your property’s net operating income (NOI) to its debt obligations, should ideally be above 1.2 to show that your income sufficiently covers the debt.
Income Stability: Demonstrating consistent rental income and high occupancy rates for income-producing properties reassures lenders of your financial stability.
Financial Reserves: Having reserves to cover unexpected costs or vacancies adds to your financial robustness in the eyes of lenders

financial documents

3. Capital

Capital refers to the amount of money you are investing in the project. Lenders want to see that you have skin in the game, which reduces their risk. Important considerations include:

Loan-to-Value Ratio (LTV): A lower LTV ratio, meaning you are putting more equity into the property, indicates lower risk for the lender.
Equity Contribution: The more capital you invest, the more confidence lenders have in your commitment and the project's viability.

4. Collateral

Collateral is the asset that secures the loan. In CRE, the property itself often serves as collateral. Lenders evaluate:

Property Value: An accurate and professional appraisal of the property’s market value is crucial.
Condition: The property should be in good condition or have a solid plan for any necessary renovations.
Location and Market Conditions: Properties in prime locations or those in markets with strong growth prospects are seen as lower risk.

property valuation

5. Conditions

Conditions refer to the terms of the loan and the broader economic and market environment. This includes:

Loan Terms: Understanding the interest rates, repayment schedule, and any specific covenants or conditions tied to the loan.
Market Trends: Awareness of current and projected trends in the real estate market can impact the loan’s risk.
Economic Environment: Factors like economic growth, employment rates, and interest rates can influence your ability to meet loan obligations.


Navigating the 5 Cs of Credit is crucial for any borrower seeking commercial real estate financing. At Atlantic Commercial Lending, we leverage our expertise as a commercial mortgage broker to help you understand and meet these criteria, increasing your likelihood of securing favorable loan terms.

By focusing on character, capacity, capital, collateral, and conditions, we ensure that our clients are well-prepared to meet lender expectations. Contact us today to learn how we can assist you in securing the best financing for your commercial real estate projects. With our guidance, you can confidently approach lenders and demonstrate your readiness and reliability as a borrower.