THIS IS AN UNSCIENTIFIC OBSERVATION, but it looks as if retail has turned the corner. At this time last year, our editors were posting online several stories a month on dealership closings. Fast-forward to mid-2012, and store BK news is almost nonexistent. These days, we’re more likely to write about dealers taking on franchises, expanding their showrooms, or even adding retail locations.
If you’re trying to fund an expansion, realize the rules have changed. Lending institutions are now risk-averse, and what secured you a business loan 10 years ago might not land that deal now, according to the Retail Owners Institute (ROI), a Seattle-based consulting firm. So you or someone on your team must learn to speak bankerese.
“To make money, [bankers] must lend money, but they always have the home field advantage,” says Dick Outcalt, co-founder of the ROI with partner Pat Johnson. “Remember The Golden Rule of Lending: Whoever has the gold makes the rules.”
Shelve the discourse on adventure touring; today’s banker is dazzled by numbers and your ability to interpret them. You must use quantitative and qualitative information to make your case.
“Do not approach a banker like a business owner,” Johnson advises. Banker personalities do not understand risk, “and they particularly abhor retail.” They especially don’t like retail markets that are subject to seasonality. (Bet you’re excited now, aren’t you?) So preparation is essential.
Your presentation, the partners say, must discuss “The Five Cs of Credit”:
- CHARACTER (your credit history and any current and past litigation, for example);
- CAPACITY (from the expertise of your senior managers to the feasibility of your business plan);
- CAPITAL (the financial cushion between the loan balance and the liquidation value of your collateral, enabling you to weather economic reversals without becoming insolvent);
- COLLATERAL (securities, real estate, accounts receivable, inventory — anything that can be sold quickly); and
- CONDITIONS (the contingency plan for events beyond your control).
Your negotiation strategy, say Johnson and Outcalt, depends on the strength of your financial statement and whether the lender is a current or new source. You must be able to compare your statement to those of other powersports dealers as well as to Risk Management Associates benchmarks (which you can find online or at your local library).