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  1. 1. 8 COMMERCIAL LENDING 8.1 Commercial Loans 8.2 Commercial Credit Analysis 8.3 Small Business Loan ProgramsSlide 1 © South-Western Publishing
  2. 2. Lesson 8.1 COMMERCIAL LOANS GOALS List purposes for commercial loans Identify types of commercial loansSlide 2 © South-Western Publishing
  3. 3. THE NATURE OF COMMERCIAL LENDING Commercial lending is lending to business enterprises. Commercial lending practices may apply to individuals, such as a person who is buying rental property.Slide 3 © South-Western Publishing
  4. 4. COMMERCIAL PURPOSES Real estate Construction Equipment OperationsSlide 4 © South-Western Publishing
  5. 5. TYPES OF COMMERCIAL LOANS Term loans Short-term loans Lines of credit Real estate and equipment loans Contract financing Bridge loans Leasing Asset-based loansSlide 5 © South-Western Publishing
  6. 6. Lesson 8.2 COMMERCIAL CREDIT ANALYSIS GOALS Identify basic ratios used in commercial underwriting List other items used to evaluate commercial loans Explain the importance of disclosure in commercial loansSlide 6 © South-Western Publishing
  7. 7. COMMERCIAL CREDIT ANALYSIS TOOLS Debt ratio is the total obligations compared to the total income. Loan-to-value ratio is the principal amount of the loan divided by the value of the securing property. Debt service coverage ratio (DSCR) compares net operating income to the total cost of debt.Slide 7 © South-Western Publishing
  8. 8. DEBT RATIO Debt ratio  Debt  Income Example Monthly debt: $1,500 Monthly income: $3,000 $3,000  50% $1,500Slide 8 © South-Western Publishing
  9. 9. LOAN-TO-VALUE RATIOLoan-to-value ratio  Principal  Market valueExamplePrincipal: $45,000Market value: $100,000 $45,000  45% $100,000Slide 9 © South-Western Publishing
  10. 10. DEBT SERVICE COVERAGE RATIO Debt service coverage ratio  Net operating income  Total debt service Example Net operating income: $650,000 Total debt service: $520,000 $650,000  1.25 $520,000Slide 10 © South-Western Publishing
  11. 11. OTHER EVALUATION  In order to perform ratio and other analyses of a company’s finances, lenders want full access to company financial records.  Typically, lenders want to examine the following.  Federal and state income tax returns for three years  Company financial statements for three years  Year-to-date profit and loss and balance statements  Projected cash flow estimates for at least the coming year  Valuations and appraisals for collateral used to secure the loan  Written business plan  Personal financial statements of ownersSlide 11 © South-Western Publishing
  12. 12. DISCLOSURES Most commercial lending is regulated only by the terms of the loan agreement and some state laws. It is the ethical and professional responsibility of all parties to commercial lending to see that loans are honestly and soundly underwritten.Slide 12 © South-Western Publishing
  13. 13. Lesson 8.3 SMALL BUSINESS LOAN PROGRAMS GOALS Describe the purpose of the SBA Explain SBA loan eligibility requirements Identify SBA loan optionsSlide 13 © South-Western Publishing
  14. 14. THE SMALL BUSINESS ADMINISTRATION The Small Business Administration (SBA) offers a number of financial, technical, and management programs to help businesses.Slide 14 © South-Western Publishing
  15. 15. SBA ELIGIBILITY Type of business Size of business Use of loan fundsSlide 15 © South-Western Publishing
  16. 16. SBA LOAN TERMS AND CONDITIONS 7(a) Loan Guaranty SBALowDoc and SBAExpress CAPLines Microloans Special-purpose programs Community Adjustment and Investment Program (CAIP) DELTA program Economic Injury Disaster loans Small Business Investment Company (SBIC)Slide 16 © South-Western Publishing