Capacity is one of the 5 C's of credit. The others are Character, Collateral, Conditions and Capital.
Capacity refers to your ability and the capacity of your business to repay a loan. The evidence requires some number crunching showing the relationship between the revenue and the expenses of your proposed venture.
A Cash Flow Statement is the most common presentation of capacity to repay. The easiest way to construct this statement is using a spreadsheet. It allows you to manipulate through numerous "what-if" iterations as you fine tune each number. While you're waiting for Uncle Max to post some templates, there are many samples available in texts and booklets from many sources including those from your bank.
If you anticipate frequent changes, you can record expenses with revenue related formulae instead of concrete dollar amounts. Then, you can easily produce a different chart simply by altering the number in your revenue cell.
Include, at least, three scenarios: worst case, best (ideal if all goes well) case and, expected (matching forecasts.) Depending on the situation, you could consider: conservative, expected and optimistic.
Identifying the sources, rational and calculations for most of the projected numbers adds credibility.
Check and double check each number and ratio. A third party is most helpful if you are not a number-crunching expert or your resource data is weak or irrelevant to your proposed venture. Most lenders are skilled at reading these statement and some have benchmark devices for testing the ratios. Major flaws will jeopardize the value of the other 4 C's.
Is your plan credible (believable) AND creditable (commendable OR credit worthy?)
Stories from members will add great value to these maxims
Please post your story by emailing it to max@unclemaxsays.com.
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