Commercial credit analysis can introduce a lot of complexities into the banking organization: additional underwriting standards, new financial data to collect and interpret, complex relationships with multiple entities and commingled incomes, additional regulatory focus, etc. Sageworks Senior Consultant Peter Brown covers some of the basics that come with credit analysis including what data to consider, how to analyze the data, when to introduce benchmarking and automation and other topics.

1. Credit Analysis 101

2. Poll: What is your role at
the institution?

3. Poll: What is your
experience level with
credit analysis?

4. Our Presenter

5. 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

6. Background

7. Sageworks

8. Agenda

9. Key Fundamentals for Successful Loan Packages
• Qualification
• Quantification
• Presentation

10. Introduction

11. 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

12. The 5 C’s of Credit

13. The 5 C’s of Credit
Character
—personal integrity of business owners
and officers

14. The 5 C’s of Credit
Capacity
—can the borrower generate adequate cash
to repay the loan

15. The 5 C’s of Credit
Capital
—is the borrower adequately capitalized
within industry standards to withstand
unexpected loss

16. The 5 C’s of Credit
Collateral
—is there an alternative source of
repayment in case the primary source
fails

17. The 5 C’s of Credit
Conditions
—the economic, industry, and market
environment can and will change. Is the
borrower flexible enough to adapt

18. The 5 C’s of Credit
• So what?
• Analyze
• Present
• Get approval

19. Qualification

20. Who are our customers?

21. Big Dreams

22. Difficulty Executing

23. What’s the problem?

24. 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

25. Why do they need a loan?

26. Phase of Business Cycle

27. • Purchase Real Estate
• Purchase Equipment
• Purchase Inventory
• Increase Working Capital
Specific Needs

28. How to match needs with
loan types?

29. Type of Loan Available
• SBA loan
• Credit Card
• Line of Credit
• Short-term Loan
• Longer-term Loan

30. Qualification Summary

31. Matching the Right Loan

32. Quantification

33. Poll: How are you
currently quantifying your
credit analysis?

34. Financial Statements

35. Financial Statements
A financial statement
is…
…a standard way to
measure and track
performance

36. Financial Statements
Income Statement
Measure of performance over a
defined time

37. Financial Statements
Balance Sheet
Measure of performance at one point
in time

38. Financial Statements
Cash Flow
Measure changes in balance sheet
and income affecting cash position

39. Key Metrics

40. 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…

41. Working Capital

42. EBITDA

43. Debt Service Coverage Ratio
Approx 1.2
Minimum

44. Industry Comparison

45. Industry Comparison
• How are they doing compared to their peers
• Now
• Historically
• Key Metrics

46. Industry Comparison

47. Industry Comparison

48. Quantification Summary

49. Quantification
• Financial Statements
• Key Metrics
• Industry Comparison

50. Presentation

51. Typical Processes

52. Loan Package
• Multiple formats
• Copy and paste
• Abundance of information

53. Successful Presentation

54. Loan Package
• Why – Telling the story
• What – Key Highlights
Less is more

55. Process
• Fully Analyze
• Synthesize
• Make Concise

56. Demonstration

57. Success!

58. Summary

59. Success!
• Qualify
• Quantify
• Present

60. Are you interested in
learning more about
Sageworks Credit
Analysis?

61. Questions