How Interest Rates Are Used to Control Inflation

20091215_whiteboard-interest-rates_17Many of us know that inflation is bad, but most of us don’t realize how it works. Paddy Hirsch gives a simple, but brilliant explanation. Watch this video and let me know what you think by leaving a comment.
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Interest rates from Marketplace on Vimeo.

The 5 C’s of Credit

piggybankThe 5 C’s of Credit

The Story of Your Business

The 5 C’s of Credit will help you to tell the lender why they should INVEST in you?  Tell the story and you won’t have to SELL the story. Lenders want to lend money, but they are charged with being good stewards of the money. That means bankers are taking calculated risks. Write the story (TRUE STORY) of why you are a good investment using the 5 C’s of Credit and you’re a dead ringer for getting what you want.
It just make it easier for them to give you the money.

Using the 5 C’s of Credit won’t guarantee that you’ll get funded, but it will show whether you are a good investment. If when you are finished writing your own 5 C’s you find that you are not a good investment begin your work on improving the areas that need help. Then go apply. As always, talk with your banker. They are there to help you through the process.

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Character

Character is the heart of the story. This is the “why” you should get the loan on a people skills level. This is somewhat subjective and looks a little like this.

Character Example: Jason has been working in heating and air repair and maintenance for 11 years and had a strong supplier network built for receiving supplies fast. His knowledge is rarely surpassed and the customer base he’s built is loyal. He has good reason to set out on his own.

Capital

Capital is the what can does the borrower have that will back up the loan if they default. NOT COLLATERAL. Collateral is the security of the loan. Capital can refer to down payment, equity in the property, or over all net worth.

Capital Example: Dr. Jones is a good capital risk because his net worth is $3MM non-real estate and we are only loaning him 40% of the what the property is worth

Capacity

Capacity is the ability to repay the loan concerning cash-flow. What debts are out there and how much money does the company have coming in to support the loan and it’s terms.

Capacity Example: Phillip has been running his business out of his garage for 12-15 months and saving every dime he has possible without taking on any long-term debt except his work truck. He has a monthly payment of $350 and enough cash in reserves to support the business operations, the loan payment, and his work truck payment for 18 months before running out of cash if none at all was generated. For the last 12-15 months he’s generated 5 times revenue over debts. There is good reason to believe this trend is here to stay.

Collateral

Collateral is simply what you pledge in lue of the money. Or better put: Collateral is what they will come and get (for a fee) if you default on the loan.

Collateral Example: You put up your work truck, inventory, office furniture, etc for a $15M loan.

Conditions

Conditions refer to what special circumstances make THIS particular venture the right one to INVEST in right now. What considerations should the lender take into account before extending a loan? These can include market conditions, personal experience, etc.

Conditions Example: Eileen  has been working as a seemstress for 30 years and loves embroidery. Her husband is a business man and has many contacts. For years people have commented on the intricate embroidery on the cuffs of his dress shirts. This is Elieen’s handy work. There is a strong referral base set up and with the marketplace for business jobs thinning out due to the economy, Eileen has positioned her “low-cost extras” as a competitive advantage for out-of-work business men to have that added edge that gets them remembered.

In addition to that, she has recently retired and has 30 – 40 hours per week to devote to the business.

The Story of Your Business

If you are a lender just starting out and you haven’t used this before, I implore you.  Knock your underwriter’s socks off.  Do this and watch the nature of your business change.  From the initial interview with your client to the closing to the follow up as the loan is being paid off.


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Out of Gas

out-of-gasAs a Banker, I have to get re-certified for things all the time.  This is a story about the time I had to get my insurance license re-certified.  Now Augusta has close to 500,000 people in the Metro Area, but no re-certification centers.  So I HAVE TO drive to a town made up of 50,000 students that has tons of wings and beer to get re-certified.  So I decided to leave Augusta the night before and stay with my sister-in-law Andria in Athens.  That way I could be early and prepared for the exam.
My trusty Jeep Cherokee was a great car, but a thirsty one.  For some reason, my preparedness didn’t extend to getting a full tank of gas before leaving Augusta.  My mind MUST have been reviewing all of those insurance laws or something.  I certainly wasn’t thinking about wings or beer.
I noticed the __ miles to Empty indicator showed about 11 when I was 30 miles away from Athens.  If you’ve ever traveled from Augusta to Athens you know there really is one place to buy gas.  I prayed I’d make it.
I coasted into the gas station just in the nick of time as you can see from the picture.
Since then, I’ve received my insurance re-certification, gotten a new car, and stopped for gas a few times.  One thing I’ll never do again is leave home without a full tank.
Although, there is some mystique about a country gas station that sells Fresh Fried Chicken 😉 (I’m scared of that)

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What’s your out of gas story? Leave a Reply on the website and tell us all about it!

Snow Day Augusta!

img_347710 Years in the making, but we finally got a snow day.  Gabby was thrilled! Check out these pictures.  Gabby kept wanting to eat the snowman’s nose.  We didn’t have any coal so we had to paint some rocks.  Soon the snow melted and we were left with only memories and these pictures.  It was a blast.  Throwing snowballs at each other, rolling a huge ball of snow around the house to build the snowman, and sipping hot chocolate by the fire to warm up.
When April left to go home on Friday night she almost ran over 2 kids rolling a 5 ft tall snowball down the street.  It was a wintry dream come true… for every one of us kids.

The Girl Scouts – My Nemesis This Time of Year

img00295scaledThey stand outside of Walmart and knock on doors with their little red wagons filled. You know them as well as I do. The future sales women of America cutting their teeth with door-to-door sales. The Girl Scouts. From this picture you can see that even though I avoided them as much as possible, they have infiltrated my realm… AGAIN. Tagalongs rock. Now I have to go… I’m getting chocolate on my phone.
Ryan McKinney
www.MeetTheMcKinneys.com
“You Won’t Be The Same”