CASE ANALYSIS: Joe’s Restaurant

Mr. Joe Salazar applied for a PHP1.5 million loan in behalf of his business, “Joe’s Restaurant”, for
additional capital in 2015. He is the Chairman of the Board of Joe’s Restaurant. In their meeting,
the Board decided to open an additional branch for the restaurant. Joe’s Restaurant currently
has 3 branches in Metro Manila and would like to open up a small branch in Quezon City. Joe’s
Restaurant has been in the business for 12 fruitful years and has been a previous borrower of the
bank. The company had previous late payments before but the reasons are usually justifiable, and
the balance of the loan, along with any penalties, if any, is paid. The three branches earn a net
income of PHP900,000/year. The lot where the main restaurant is located is pledged as collateral
to the bank. This property is valued at PHP2 million. Shown below is an excerpt from Joe’s
Restaurant’s 2014 consolidated audited financial statements.

Using the 5C’s of credit in evaluating the loan application, should the bank grant and issue the
loan? Take note that the feasibility of the new project is yet to be established. Collateral in itself
is not enough to ensure repayment. The loan should be long-term to accommodate the project
as well as the company’s cash flow and profit.