Capacity, which is one of the traditional "five Cs" of credit analysis, refers to the ____.
A) general economic climate and its effect on the applicant's ability to pay
B) willingness of the applicant to meet its financial obligations
C) financial strength of the applicant (i.e., net worth)
D) ability of an applicant to meet its financial obligations

Question

Quizplus · Accepted Answer

Capacity refers to the ability of an applicant to meet its financial obligations, such as paying back a loan. It is an assessment of the applicant's current and future financial situation, including income, expenses, and existing debts. The other choices, such as general economic climate and willingness to meet financial obligations, may also be considered in credit analysis, but they are not specifically related to the concept of capacity.

Capacity, Which Is One of the Traditional "Five Cs" of Credit