2. Introduction to the Borrowing Base Part One As many of you already know, Lender’s Consulting Group, Inc. provides collateral field examinations for lenders of all shapes and sizes throughout the country. Historically, the majority of the field examinations we have provided have been for traditional asset based lending. This figure is dramatically changing now with more and more commercial banks requiring collateral field examinations on a majority of their C&I deals. Several commercial banks that have failed to utilize field examinations in the past, or monitored a borrowing base certificate (BBC), were unable to capture many of the ineligibles that could severely impact the true borrowing capacity of a company. Over the next several months, we will be providing lenders with a series of brief tutorials that illustrate these commonly overlooked ineligibles. Our first section we will tackle is the most complex – Accounts Receivable. The first three ineligibles we will be focusing on are Over 90 days, Cross-Aged, and Aged Credits. In the following presentation, please notice the difference between how the borrower calculated borrowing base availability and how our Field Examiner calculated availability. www.LendersConsulting.com
3. Introduction to the Borrowing Base Part One 1,713,952 51,954 Common Ineligible A/R submitted by Borrower! Commonly unreported Ineligible A/R! 171,092 OVER $600,000 difference in available A/R!!! www.LendersConsulting.com
4. A/R Ineligibles (a) – Over 90 Days Past Due Within a due date aging, accounts over 60 days past due (or any other predetermined time frame) will be considered ineligible. Understanding your client’s credit terms on their agings can uncover additional past due A/R!!!
5. A/R Ineligibles (b) – Aged Credits Credit balances that age into the “Over 90” column reduce the aggregate balance of these ineligibles which increases the company’s availability.
6. A/R Ineligibles (c) – Cross Aged An account debtor that has balances in the “Ineligible” buckets that makes up 50% or more of entire A/R balance. In this instance, the entire A/R balance is ineligible.
7. Things to consider… Understand the company’s industry and learn of any unusual inventory or accounts receivable practice. Learn how your client sells, invoices and collects. Know the paper trail! Insist on timely borrowing base reports and all supporting material. Review the detail of the report and supporting documentation (knowing you are watching is a good deterrent to fraud). Perform trend analysis by tracking newer reports against prior periods. Use professional collateral auditing firms in appropriate situations (i.e., larger facilitiesor early in a distressed situation). A CPA audit or review does not take the place of a collateral field exam! STAY TUNED FOR THE NEXT 3 COMMONLY OVERLOOKED INELIGIBLES!!! www.LendersConsulting.com
