Corporation & Business Lending

Principle of Corporate Lending

Methods of Lending Assessment

PARSER

The Lending Cycle

5Cs

  1. Personal Factors, analyzing the company from a cultural and ethical perspective.
  2. Amount Required, classification of loan purpose, the amount required for the project.
  3. Terms of Repayment, repayment method, no hassle.
  4. Security is there any collateral on the borrowed amount.
  5. Expedition is an assessment to see if the lender can use the funds accordingly.
  6. Remuneration, whether the loan is profitable

i. Identification of Target Market
ii. The success of loan origination depends on the ability of lenders to find customers and meet their expectations.
iii. The Credit Analysis
iv. The Negotiation Stage
v. The Advice of Approval
vi. Formal documentation
vii. Disbursement of Funds
viii. Once the loan is drawn, the formal loan management and review process begins.
ix. Orderly Payment

If the Loan is Unsuccessfully Conclude

  1. During the planning phase, consider possible contingencies that may require remedial action.
  2. If remedial measures fail, the loan must be considered a loss, so a provision for loan losses is required.
  3. Exercise situations include taking action in enough time to have a chance to turn a bad situation into full repayment.
  4. A write-off is the last event in which the life cycle stops and the lender formalizes the loss through an accounting transfer.
  1. Character, overseeing what the company is all about and to examine the company's history.
  2. Collateral, an asset in a business name, which can be stock or property, can be used to secure a loan in the event of default.
  3. Conditions, including repayment conditions, loan purpose.
  4. Capital, a company should enough capital as it to raise or own before applying for a loan, as an indicator of financial strength.
  5. Capacity, whether the company has the ability to repay the loan, which can be checked their past financial statements.
  • Security: It looks at the ability to repay the loan
  • Suitability: It looks at the institution's loan policy, loan purpose, loan amount, and repayment schedule
  • Profitability: It looks at the institution's collateral advantage and return on investment.

Structuring the Loan Proposal

Three Components of Corporate Loan

  • Origination
  • Funding
  • Managing

5Cs of Bad Credit
i. Complacency: Overestimating a borrower's potential due to past history.
ii. Careless: Lack of attention to detail, not worrying about documentation as it is considered good.
iii. Miscommunication: This can lead to broken business relationships.
iv. Failure to Set Contingencies
v. Competition

Managing the Loan Portfolio

External Factor

  • Government regulations can affect the survival of a business throughout its life cycle.
  • Technological progress, which happens at an exponential rate, comes with costs. Such push costs could push the company into liquidation.
  • Globalization leads to increased competition and forces change.

Internal Factors

  • Poor planning and goal setting, resulting in an inability to cope with change.
  • Poor profit planning and control, excessive withdrawals, and use of questionable items to justify the expenditure.
  • The Inadequate resource and personnel management system.

Warning Signals by Benhow

  1. Borrowers' History
  2. Management Concern
  3. Credit Factor
  4. Change in the Operation Pattern
  5. Loan Structure
  • Any loan structure needs to take into account the cash flow generated by the opportunity behind the application
  • Any loan requires the business to invest in the opportunity to generate enough cash to repay the loan principal and any interest

The Question that Lenders Seek

  1. Is the loan amount sufficient to accomplish the task
  2. Is the cash available and is it identifiable for repayment
  3. What is the term of the debt Long-term or Short-term
  4. If LT, whether future projections of cash flows demonstrate sustainability and whether the purpose of the loan is consistent with the term
  5. If ST does an asset conversion cycle and working capital efficiency generates enough cash for repayment
  6. Do borrowers exhibit seasonal demand and qualify for voyeurism
  • Credit Rating Agencies
  • Skills required of the Loan Officer

The Purpose of Corporate Lending
the lender is to ensure that the loan grows in a high-quality manner in order to make a profit and ensure that shareholder wealth is maximized in the long term.

The Loan Portfolio

i. Asset Mix and Loan Types
ii. Diversification to protect the Internal Cash Flows
iii. Geographic Limit
iv. Expertise to ensure that the target market is served with knowledgeable staff that understands the market
v. Policy Formulation
vi. Environmental Issue
vii. A Competitive Environment
viii, Delegation
ix. Audit & Review
x. Consideration of Risk in the construction of the portfolio