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Credit Analysis 101
Poll: What is your role at
the institution?
Poll: What is your
experience level with
credit analysis?
Our Presenter
Peter is a Senior Consultant for Sageworks, where he
provides risk-management advisory services to
Sageworks’ bank and cre...
Background
Sageworks
Agenda
Key Fundamentals for Successful Loan Packages
• Qualification
• Quantification
• Presentation
Introduction
Financial Institution Perspective
Who is Borrowing the Money:
Step 1. Customer Profile
Can They Pay Us:
Step 2. Financial ...
The 5 C’s of Credit
The 5 C’s of Credit
Character
—personal integrity of business owners
and officers
The 5 C’s of Credit
Capacity
—can the borrower generate adequate cash
to repay the loan
The 5 C’s of Credit
Capital
—is the borrower adequately capitalized
within industry standards to withstand
unexpected loss
The 5 C’s of Credit
Collateral
—is there an alternative source of
repayment in case the primary source
fails
The 5 C’s of Credit
Conditions
—the economic, industry, and market
environment can and will change. Is the
borrower flexib...
The 5 C’s of Credit
• So what?
• Analyze
• Present
• Get approval
Qualification
Who are our customers?
Big Dreams
Difficulty Executing
What’s the problem?
1. Lack of experience
2. Insufficient capital (money)
3. Poor location
4. Poor inventory management
5. Over-investment in ...
Why do they need a loan?
Phase of Business Cycle
• Purchase Real Estate
• Purchase Equipment
• Purchase Inventory
• Increase Working Capital
Specific Needs
How to match needs with
loan types?
Type of Loan Available
• SBA loan
• Credit Card
• Line of Credit
• Short-term Loan
• Longer-term Loan
Qualification Summary
Matching the Right Loan
Quantification
Poll: How are you
currently quantifying your
credit analysis?
Financial Statements
Financial Statements
A financial statement
is…
…a standard way to
measure and track
performance
Financial Statements
Income Statement
Measure of performance over a
defined time
Financial Statements
Balance Sheet
Measure of performance at one point
in time
Financial Statements
Cash Flow
Measure changes in balance sheet
and income affecting cash position
Key Metrics
Current Ratio
…a measure of whether or not a
business has enough resources
to pay its short-term debts over
the next 12 mo...
Working Capital
EBITDA
Debt Service Coverage Ratio
Approx 1.2
Minimum
Industry Comparison
Industry Comparison
• How are they doing compared to their peers
• Now
• Historically
• Key Metrics
Industry Comparison
Industry Comparison
Quantification Summary
Quantification
• Financial Statements
• Key Metrics
• Industry Comparison
Presentation
Typical Processes
Loan Package
• Multiple formats
• Copy and paste
• Abundance of information
Successful Presentation
Loan Package
• Why – Telling the story
• What – Key Highlights
Less is more
Process
• Fully Analyze
• Synthesize
• Make Concise
Demonstration
Success!
Summary
Success!
• Qualify
• Quantify
• Present
Are you interested in
learning more about
Sageworks Credit
Analysis?
Questions
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Credit Analysis 101

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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.

Published in: Business
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Credit Analysis 101

  1. 1. Credit Analysis 101
  2. 2. Poll: What is your role at the institution?
  3. 3. Poll: What is your experience level with credit analysis?
  4. 4. Our Presenter
  5. 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. 6. Background
  7. 7. Sageworks
  8. 8. Agenda
  9. 9. Key Fundamentals for Successful Loan Packages • Qualification • Quantification • Presentation
  10. 10. Introduction
  11. 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. 12. The 5 C’s of Credit
  13. 13. The 5 C’s of Credit Character —personal integrity of business owners and officers
  14. 14. The 5 C’s of Credit Capacity —can the borrower generate adequate cash to repay the loan
  15. 15. The 5 C’s of Credit Capital —is the borrower adequately capitalized within industry standards to withstand unexpected loss
  16. 16. The 5 C’s of Credit Collateral —is there an alternative source of repayment in case the primary source fails
  17. 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. 18. The 5 C’s of Credit • So what? • Analyze • Present • Get approval
  19. 19. Qualification
  20. 20. Who are our customers?
  21. 21. Big Dreams
  22. 22. Difficulty Executing
  23. 23. What’s the problem?
  24. 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. 25. Why do they need a loan?
  26. 26. Phase of Business Cycle
  27. 27. • Purchase Real Estate • Purchase Equipment • Purchase Inventory • Increase Working Capital Specific Needs
  28. 28. How to match needs with loan types?
  29. 29. Type of Loan Available • SBA loan • Credit Card • Line of Credit • Short-term Loan • Longer-term Loan
  30. 30. Qualification Summary
  31. 31. Matching the Right Loan
  32. 32. Quantification
  33. 33. Poll: How are you currently quantifying your credit analysis?
  34. 34. Financial Statements
  35. 35. Financial Statements A financial statement is… …a standard way to measure and track performance
  36. 36. Financial Statements Income Statement Measure of performance over a defined time
  37. 37. Financial Statements Balance Sheet Measure of performance at one point in time
  38. 38. Financial Statements Cash Flow Measure changes in balance sheet and income affecting cash position
  39. 39. Key Metrics
  40. 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. 41. Working Capital
  42. 42. EBITDA
  43. 43. Debt Service Coverage Ratio Approx 1.2 Minimum
  44. 44. Industry Comparison
  45. 45. Industry Comparison • How are they doing compared to their peers • Now • Historically • Key Metrics
  46. 46. Industry Comparison
  47. 47. Industry Comparison
  48. 48. Quantification Summary
  49. 49. Quantification • Financial Statements • Key Metrics • Industry Comparison
  50. 50. Presentation
  51. 51. Typical Processes
  52. 52. Loan Package • Multiple formats • Copy and paste • Abundance of information
  53. 53. Successful Presentation
  54. 54. Loan Package • Why – Telling the story • What – Key Highlights Less is more
  55. 55. Process • Fully Analyze • Synthesize • Make Concise
  56. 56. Demonstration
  57. 57. Success!
  58. 58. Summary
  59. 59. Success! • Qualify • Quantify • Present
  60. 60. Are you interested in learning more about Sageworks Credit Analysis?
  61. 61. Questions

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