COMMERCIAL LENDING - PowerPoint PPT Presentation

jael
commercial lending n.
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COMMERCIAL LENDING

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  1. COMMERCIAL LENDING Basis for our external financing analysis

  2. SPECIAL FEATURES OF BANKS • SCREENING LOAN APPLICANTS • IMPARTIAL CREDIT ALLOCATION • EFFECTIVE MONITORING

  3. CHANGING LOAN MARKET • NEW COMPETITORS • SELLING OF LOAN INTO SECONDARY MARKET • SPECIALIZED SERVICES

  4. BASIC TYPES OF LOANS • SHORT TERM LOANS (< ONE YEAR) • TERM LOANS (>ONE YEAR) • REVOLVING LINES OF CREDIT - HYBRID BETWEEN SHORT TERM AND TERM DEBT

  5. SHORT TERM LOANS • SOURCES OF REPAYMENT - WORKING CAPITAL • ANALYSIS - COMPONENTS OF W.C. • FACILITY - LINE OF CREDIT • COLLATERAL - INVENT; A/R

  6. TERM LOANS • REPAYMENT - LONG TERM CASH FLOW • ANALYSIS - CASH FLOW • FACILITY - FIXED MATURITY AMORT • COLLATERAL - WORK CAP; FIXED A.

  7. REVOLVING LINES OF CREDIT • REPAYMENT - L.T. CASH FLOW or CONVERSION TO TERM LOAN • ANALYSIS - SIMILAR TO TERM LOAN • FACILITY -ADVANCES AGAINST COLLATERAL • BORROWING BASE

  8. SHORT TERM LOAN PROBLEMS • BANK NOT PAID AT END OF CYCLE • PRODUCTS NOT PRODUCED AS PLAN • CASH FLOW TO PURPOSES OTHER THAN REPAYMENT

  9. S.T. LENDER ERRORS • OVERESTIMATES PEAKS/TROUGHS • USE OF FUNDS NOT WELL MONITORED • TOO LITTLE MARGIN OF ERROR • HIGHLY SPECULATIVE INVENTORY

  10. TERM LOAN PROBLEMS • INADEQUATE SALES TO AMORT. DEBT • TOO NARROW PROFIT MARGINS • CASH ABSORBED AT HIGHER RATE • INFLEXIBLE MANAGEMENT • ASSET OBSOLESCENCE > LOAN AMORT.

  11. TERM LOAN LENDER ERRORS • FAIL TO ASSESS MANAGEMENT • FAIL TO UNDERSTAND INDUSTRY • INDEFINITE PROJECTION FROM PAST DATA • FAIL TO ANTICIPATE ADDED CAPITAL • OVERESTIMATE COLLATERAL VALUE

  12. REVOLVING LOAN PROBLEMS • FUNDS NOT USED FOR WORK. CAP. • VIOLATION OF SOUND CREDIT POLICY • SPECULATIVE INVENTORY • INSUFFICIENT PROFITS

  13. LENDER ERRORS IN REVOLVING LOANS • REACTS TOO LATE TO GET SECURITY • EXCESSIVE INVENTORY VALUATION • LENDER CARRIES BORROWER TOO LONG • FAILED LENDING PROCEDURES