Multi-Unit Franchisee Magazine Issue II, 2011 | Page 87
“bankability.” Banks generally evaluate your
loan request using the “five C’s” of credit:
• Character: You must be trustworthy
and have a good name; otherwise how good
the deal is won’t matter.
• Capital: Don’t look for 100 percent
financing; expect to invest some funds
yourself (skin in the game).
• Collateral: What assets are available as a secondary source of repayment
(just in case)?
• Capacity: You must understand your
company’s ability to absorb and repay debt
(financial skills).
• Conditions: What are the general
economic conditions, and in what ways
will they affect your industry and your
company (shaky recovery)?
Since the bank really depends almost entirely on you, the more you
look like you know what you’re doing, the better off you are. Coupling
this knowledge with an understanding
of the way banks operate can create a
winning combination in getting what
you need at the bank.
T test whether or not you’re adequately
o
prepared, always ask yourself the following five questions, the ones most bankers
want answered before they’ll lend anybody anything:
1. How much do you need?
2. What will you do with it?
3. When will you pay it back?
4. How will you pay it back (i.e., what
will make cash flow)?
5. What if something goes wrong?
If you can answer all of these questions,
you’re ready.
Then keep in mind the old Boy Scout
motto: Be prepared. And be mindful of
the advice from a senior credit manager
at one of the larger Midwest banks: 1)
keep in mind that borrowing is a privilege,
not a right, and 2) know your numbers or
stay home!
Steve LeFever is chair of Business Resource
Services (BRS), where he guides business
networks from “Profit Mystery” to “Profit
Mastery.” For more than 10 years, franchisors
and franchisees have improved their financial
performance by following the BRS Profit Mastery process: financial training, performance
benchmarking, and accountability/bankability
modeling. Contact BRS at 800-488-3520 x14
or [email protected].
Multi-unit Franchisee Iss u e II, 2011
85