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Certification Program for Evaluating, Underwriting, and Making Commercial Loans

Duration : 3 Hours

Dev Strischek,

A frequent speaker, instructor, advisor and writer on credit risk and commercial banking topics and issues, Dev is principal of Devon Risk Advisory Group and engages in consulting, speaking and training on a wide range of risk, credit, and lending topics. As former SVP and senior credit policy off Read more

Commercial lending  requires bankers to assess a borrower’s creditworthiness, and that requires lenders to determine repayment ability.  In principle, commercial bankers look for three sources of repayment—cash flow from operations, collateral, and guarantees.  

Ideally, a borrower should be able to repay a loan from the successful operation of the business being financed, that is, the borrower is able to generate sufficient operating cash flow to support the business, reward its owners, and repay lenders and creditors.  As a secondary source of repayment, lenders also usually take the assets being financed, usually inventory and receivables, as collateral as a secondary source of repayment in the event that cash flow is insufficient.  Finally, bankers also expect the owners of the business to guarantee in order to gain their full support and commitment to the borrowing entity’s successful operation.  

This 3-hr session offers guidance in how to evaluate each of these repayment sources—cash flow, collateral, and guarantees.  

What You Will Learn:  

• Session 1—Cash flow

o Good credit decisions depend on logical evaluation of repayment sources

? Purpose—legal, ethical, within policy

? Repayment—cash flow, collateral, guarantees

? Structure—repay in full, on time, as agreed

o Repayment sources

? Sufficient cash flow

? Enough liquidation collateral value

? Satisfactory guarantees

o Cash flow repayment

? Global cash flow and global debt service coverage

? Why EBITDA doesn’t spell cash flow but what does

• Session 2--Collateral

o Bankers like to tie together purpose and use of funds—borrower wants to acquire assets with loan proceeds and we take those assets as collateral

o Types of financing

? Seasonal working capital financing to acquire inventory and carry receivables is common purpose

? Permanent working capital financing to fund both working capital assets and fixed assets needed to support sales growth

? Fixed assets financing, e.g., equipment, real estate

o Collateral Alternatives 

? Assets in existence at loan’s inception

• Current assts—cash, marketable securities, receivables, inventory

• Non-current assets—fixed assets, intangible assets

? Assets subsequent to loan’s inception

? Rents, leases, and other pledged cash flows

o Evaluating Collateral Risk

? Liquidity and marketability

? Perishability

? Degree of control

? Loan-to-Value (LTV) and loss given default (LGD)

? Typical LTV ranges for collateralized assets

• Session 3—Guarantees

o Why bankers expect owners to guarantee

? Piercing corporate veil

? Psychological commitment

o Types of guarantees

? Full—unconditional, joint and several, unlimited as to amount and time

? Limited—conditional, individual, limited as to amount and time

o Evaluating guarantors

? What do guarantors have at point of default?

? What wealth do guarantors have outside of their investment in borrower?

? What is realizable value of guarantors’ assets?

• Personal financial statement net worth adjusted for overvalued assets and understated liabilities

? What are guarantors’ personal income sources?

• Personal cash flow available for global cash flow after adjusting for personal expenses and debts

Case study tying together cash flow, collateral, and guarantees

What You Get:

• Training Materials

• Live Q&A Session with our Expert

• Participation Certificate

• Access to Signup Community (Optional)

• Reward Points

Who Will Benefit:

Commercial Bankers, Business Bankers, Credit Analysts, Credit Underwriters, Credit Officers, Loan Review Officers

Please reach us at 1-888-844-8963 for any further assistance or if you wish to register

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Subject : Certification Program for Evaluating, Underwriting, and Making Commercial Loans

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