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