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Credit Documentation & Review (Sources of Credit) ((Publicly Available…

- - - - Contains both Qualitative & Quantitative info.
        
        Qualitative: Chairman's statement, Auditors Report, Notes to Account
        
        Quantitative: B/L, P&L, Statement of Cash Flows
      - Sole proprietors, partnerships and limited liability partnerships no need produce audited accounts, as they are not corporate bodies subject to the requirements of the Companies Act
      - What do you look out for?
        
        Financial statements :!:
        
        Balance Sheet
        
        Gives information about the position of the company as at a point in time
        
        Profit & Loss Account
        
        Indication of the profitability of the business
        
        Statement of Cash Flows
        
        Reflects the business’ sources and uses of cash during the reporting period.
        
        Notes to Accounts
        
        Provides the details and supports the information given in the Balance Sheet and Profit & Loss Account
        
        Auditor’s report :!:
        
        'Qualified' audit report
        
        Subject to particular uncertainties
        
        The greater the degree of qualification, the more the bank should maintain a cautious attitude in lending
        
        'Unqualified’ audit report
        
        Clean audit report
        
        Give bank high degree of confidence
        
        Chairman’s Statement :!:
        
        Contains summarised information on the year, as well as, predictions for the future.
        
        Should not be taken at face value, as it is likely to reflect one point of view which may be bias
        
        Directors’ Report :!:
        
        Names of directors and their shareholdings
        
        Principal activities of the company
        
        Details of proposed dividends
        
        Important events affecting the company after the balance sheet date
    - - Contains the details of property ownership
      - Changes to the ownership must be lodged at the Registry
      - What do you look out for?
        
        Check for details of property ownership
        
        Check whether a property is encumbered
        
        If the property is encumbered, check out the details of the encumbrance
        
        Lodge a caveat on the property
    - - Contains wide variety of information on individuals and companies that are useful for credit evaluation
      - What do you look out for?
        
        1) Information about the general economic climate
        
        2) Industry specific information
        
        3) If the company is quoted on the stock exchange, the details of the current market price, dividend payment etc.
        
        4) Court proceedings :!:
    - - Provide credit information, ratings and additional comments on individual/companies and their activities.
      - Strength
        
        Provides a central database pooling together both positive and negative credit related information on its members’ customers.
      - Example
        
        Some bureaus call or write to the businesses that they have been asked to research and then report back their findings
        
        Management of businesses may only present favourable information relating their companies.
      - What do you look out for?
        
        Credit report for businesses contain
        
        1) Repayment history
        
        2) Default history
        
        3) Bankruptcy filed by members
        
        Credit report for individuals contains
        
        2) Default history
        
        3) Bankruptcy filed by members
        
        1) Basic personal profile details meant for the verification of identity