Types Of Lending By Tony Osime

Asset Conversion Cycle Purchase of RM Collection of A/Rs Cash WIP Value Added FG Value Added Sales – A/R

Credit Analysis Identify Risks Assess Repayment Probability Recommend Loan Structure

Identify Risks

Assess Repayment Probability

Recommend Loan Structure

Steps in Credit Analysis Historical Analysis Projected Analysis Credit Worthiness & Structure

Historical Analysis

Projected Analysis

Credit Worthiness & Structure

Structured Approach To Credit Experience Principles Learning From…

Structured Approach To Credit Loan Elements Purpose Repayment Source Risks Loan Structure Lending Rationale

Loan Elements

Purpose

Repayment Source

Risks

Loan Structure

3 Lending Rationale Asset Conversion Cash Flow Asset Protection

Caution Principle Concept Approach Borrower Instrument Not

Principle

Concept

Approach

Borrower

Instrument

Asset Conversion Lending Cash Timing Mismatch Bridge the gap Purchase of RM Collection of A/Rs Cash WIP Value Added FG Value Added Sales – A/R

Cash Timing

Mismatch

Bridge the gap

Asset Conversion Lending Line of credit, draw on demand, notes linked to cycle tenor. Loan Structure & Control Quality of WI, Management Protection Not completing the cycle Risks Completion of cycle Source of repayment Seasonal WI build up Loan Purpose

Cash Flow Lending Cash Timing Mismatch Long Term Bridge the (long term) gap Multiple conversion cycles

Cash Timing Mismatch

Long Term

Bridge the (long term) gap

Multiple conversion cycles

Cash Flow Lending Loan covenants Loan Structure & Control Stable profits, good management, asset security Protection Inability to generate & retain cash Risks Cash flow – future profits Source of repayment Permanent needs (long term) Loan Purpose

Asset Protection Lending Relatively Permanent need with short term vehicle Normal operations may not repay loan Quality of asset & margin important Instruments – short term for control High Volume low margin businesses Typical Instrument - Lease

Relatively Permanent need

with short term vehicle

Normal operations

may not repay loan

Quality of asset & margin important

Instruments – short term for control

High Volume low margin businesses

Typical Instrument - Lease

Asset Protection Lending Short term notes Loan Structure & Control Value & liquidity of asset financed Protection Asset value < loan value Risks Primary – cash from ops Distress – sale of asset financed Source of repayment Permanent level of readily marketable working assets Loan Purpose

Exercise – Loan structuring Learn by doing Learn from each other Develop collaboration Look for insights

Learn by doing

Learn from each other

Develop collaboration

Look for insights

Exercise – Loan structuring Teams – 6 Profile 6 companies Profile 6 loan requests Structure loans Present structures Group Review

Teams – 6

Profile 6 companies

Profile 6 loan requests

Structure loans

Present structures

Group Review

Exercise - Set up Teams Teams 4 per team (about) Balance of skills & Experience Each team becomes both Bank & Corporation Make up a name for each

Teams

4 per team (about)

Balance of skills & Experience

Each team becomes both Bank & Corporation

Make up a name for each

Prepare Company Profiles Basically credit worthy Positive factors balance negative factors Some complex issues Some hidden issues Good Profile Features

Basically credit worthy

Positive factors balance negative factors

Some complex issues

Some hidden issues

Prepare Company Profiles Name Business Management Financials History Future plans etc. Company Profile Loan request Amount Purpose Duration Security etc.

Name

Business

Management

Financials

History

Future plans etc.

Amount

Purpose

Duration

Security etc.

Present Profile to Whole Group Ask Questions Take Notes Write up public facts on flip chart

Ask Questions

Take Notes

Structure Loan For each company of the other teams (5) Ask for “private” information Note the best questions asked

For each company of the other teams (5)

Ask for “private” information

Note the best questions asked

Present Loan Structure to Company Conduct a team to team presentation Team A presents loan structure for company B Team B presents loan structure for company A Team A Team B

Company decides best structure Which team provided the best structure – Why? That team presents to the whole class

Conclude on Exercise Key learning Insights

Key learning

Insights

Loan Structuring Flow Chart Chart the general steps for loan structuring Focus on insights gained from previous exercise

Reflection What are the most important things I have learned during this session?

The End