commercial lending
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Slide 11
COMMERCIAL LENDING
8.18.1 Commercial Loans8.2 Commercial Credit Analysis8.3 Small Business Loan Programs
88
Slide 22
Lesson 8.1
COMMERCIAL LOANS
List purposes for commercial loansIdentify types of commercial loans
GOALSGOALS
Slide 33
THE NATURE OF COMMERCIAL LENDINGTHE NATURE OF COMMERCIAL LENDINGTHE NATURE OF COMMERCIAL LENDINGTHE 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 44
COMMERCIAL PURPOSESCOMMERCIAL PURPOSESCOMMERCIAL PURPOSESCOMMERCIAL PURPOSES
Real estateConstructionEquipmentOperations
Slide 55
TYPES OF COMMERCIAL LOANSTYPES OF COMMERCIAL LOANSTYPES OF COMMERCIAL LOANSTYPES OF COMMERCIAL LOANS
Term loans: Short-term loans: for a year or less
Lines of credit: Money can be borrowed using collateral to back it up.
Real estate and equipment loansContract financing: secured by the value of specific contract. Paid as
work is performed
Bridge loans: Very short term used to cover expenses
Leasing: Same as renting. At end of lease property and equipment is returned
Asset-based loans
Slide 66
Lesson 8.2
COMMERCIAL CREDIT ANALYSIS
Identify basic ratios used in commercial underwritingList other items used to evaluate commercial loansExplain the importance of disclosure in commercial loans
GOALSGOALS
Slide 77
COMMERCIAL CREDIT ANALYSIS TOOLSCOMMERCIAL CREDIT ANALYSIS TOOLSCOMMERCIAL CREDIT ANALYSIS TOOLSCOMMERCIAL 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 88
DEBT RATIODEBT RATIODEBT RATIODEBT RATIO
Debt ratio Debt ratio Debt Debt Income IncomeExampleMonthly debt: $1,500Monthly income: $3,000
$3,000 50%
$1,500
Slide 99
LOAN-TO-VALUE RATIOLOAN-TO-VALUE RATIOLOAN-TO-VALUE RATIOLOAN-TO-VALUE RATIO
Loan-to-value ratio Loan-to-value ratio Principal Principal Market value Market valueExamplePrincipal: $45,000Market value: $100,000
$45,000 45%
$100,000
Slide 1010
DEBT SERVICE COVERAGE RATIODEBT SERVICE COVERAGE RATIODEBT SERVICE COVERAGE RATIODEBT SERVICE COVERAGE RATIO
Debt service coverage ratio Debt service coverage ratio Net operating income Net operating income Total debt service Total debt serviceExampleNet operating income: $650,000Total debt service: $520,000
$650,000 1.25
$520,000
Slide 1111
OTHER EVALUATIONOTHER EVALUATIONOTHER EVALUATIONOTHER 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 yearsCompany financial statements for three yearsYear-to-date profit and loss and balance statementsProjected cash flow estimates for at least the coming yearValuations and appraisals for collateral used to secure the loanWritten business planPersonal financial statements of owners
Slide 1212
DISCLOSURESDISCLOSURESDISCLOSURESDISCLOSURES
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 1313
Lesson 8.3
SMALL BUSINESS LOAN PROGRAMS
Describe the purpose of the SBAExplain SBA loan eligibility requirementsIdentify SBA loan options
GOALSGOALS
Slide 1414
THE SMALL BUSINESS ADMINISTRATIONTHE SMALL BUSINESS ADMINISTRATIONTHE SMALL BUSINESS ADMINISTRATIONTHE SMALL BUSINESS ADMINISTRATION
The Small Business Administration (SBA) offers a number of financial, technical, and management programs to help businesses.
Slide 1515
SBA ELIGIBILITYSBA ELIGIBILITYSBA ELIGIBILITYSBA ELIGIBILITY
Type of business: Must be for profit in the US, or possessions have reasonable owner equity.
Size of business: independently owned and not dominant in its field.
Use of loan funds: Must not be used for finance of floor plan needs, purchase real estate, pay delinquent taxes, etc.
Slide 1616
SBA LOAN TERMS AND CONDITIONSSBA LOAN TERMS AND CONDITIONSSBA LOAN TERMS AND CONDITIONSSBA LOAN TERMS AND CONDITIONS
7(a) Loan Guaranty (usually up to 1 million dollars but can go as high as 2)
SBALowDoc and SBAExpress (quick turn around up to 150,000 dollars)
CAPLines (Short term for seasonal, contracts or revolving credit)Microloans (non profit max amount 35,000 dollars)
Special-purpose programsCommunity Adjustment and Investment Program (CAIP)DELTA programEconomic Injury Disaster loansSmall Business Investment Company (SBIC)
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