Credit Analysis 101

Credit Analysis 101

Poll: What is your role at

the institution?

Poll: What is your

experience level with

credit analysis?

Our Presenter

Peter is a Senior Consultant for Sageworks, where he

provides risk-management advisory services to

Sageworks’ bank and credit union clients. He brings

experience in technology, business and financial

services into his role. Peter successfully navigated

the challenges of running a small business in a

competitive marketplace.

Peter Brown

Background

Sageworks

Agenda

Key Fundamentals for Successful Loan Packages

• Qualification

• Quantification

• Presentation

Introduction

Financial Institution Perspective

Who is Borrowing the Money: Step 1. Customer Profile

Can They Pay Us: Step 2. Financial Data

Are We Protected: Step. 3 Collateral

The 5 C’s of Credit

The 5 C’s of Credit

Character

—personal integrity of business owners

and officers

The 5 C’s of Credit

Capacity

—can the borrower generate adequate cash

to repay the loan

The 5 C’s of Credit

Capital

—is the borrower adequately capitalized

within industry standards to withstand

unexpected loss

The 5 C’s of Credit

Collateral

—is there an alternative source of

repayment in case the primary source

fails

The 5 C’s of Credit

Conditions

—the economic, industry, and market

environment can and will change. Is the

borrower flexible enough to adapt

The 5 C’s of Credit

• So what?

• Analyze

• Present

• Get approval

Qualification

Who are our customers?

Big Dreams

Difficulty Executing

What’s the problem?

1. Lack of experience

2. Insufficient capital (money) 3. Poor location

4. Poor inventory management

5. Over-investment in fixed assets

6. Poor credit arrangements 7. Personal use of business funds

8. Unexpected growth

Financing-related Difficulties

Source: Michael Ames Small Business Management

Why do they need a loan?

Phase of Business Cycle

• Purchase Real Estate

• Purchase Equipment

• Purchase Inventory

• Increase Working Capital

Specific Needs

How to match needs with

loan types?

Type of Loan Available

• SBA loan

• Credit Card

• Line of Credit

• Short-term Loan

• Longer-term Loan

Qualification Summary

Matching the Right Loan

Quantification

Poll: How are you

currently quantifying your

credit analysis?

Financial Statements

Financial Statements

A financial statement

is…

…a standard way to

measure and track

performance

Financial Statements

Income Statement

Measure of performance over a

defined time

Financial Statements

Balance Sheet

Measure of performance at one point

in time

Financial Statements

Cash Flow

Measure changes in balance sheet

and income affecting cash position

Key Metrics

Current Ratio

…a measure of whether or not a

business has enough resources

to pay its short-term debts over

the next 12 months

A Current Ratio is…

Working Capital

EBITDA

Debt Service Coverage Ratio

Approx 1.2 Minimum

Industry Comparison

Industry Comparison

• How are they doing compared to their peers

• Now

• Historically

• Key Metrics

Industry Comparison

Industry Comparison

Quantification Summary

Quantification

• Financial Statements

• Key Metrics

• Industry Comparison

Presentation

Typical Processes

Loan Package

• Multiple formats

• Copy and paste

• Abundance of information

Successful Presentation

Loan Package

• Why – Telling the story

• What – Key Highlights

Less is more

Process

• Fully Analyze

• Synthesize

• Make Concise

Demonstration

Success!

Summary

Success!

• Qualify

• Quantify

• Present

Are you interested in

learning more about

Sageworks Credit

Analysis?

Questions