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COMMERCIAL LENDING

COMMERCIAL LENDING. Basis for our external financing analysis. SPECIAL FEATURES OF BANKS. SCREENING LOAN APPLICANTS IMPARTIAL CREDIT ALLOCATION EFFECTIVE MONITORING. CHANGING LOAN MARKET. NEW COMPETITORS SELLING OF LOAN INTO SECONDARY MARKET SPECIALIZED SERVICES. BASIC TYPES OF LOANS.

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COMMERCIAL LENDING

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  1. COMMERCIAL LENDING Basis for our external financing analysis

  2. SPECIAL FEATURES OF BANKS • SCREENING LOAN APPLICANTS • IMPARTIAL CREDIT ALLOCATION • EFFECTIVE MONITORING

  3. CHANGING LOAN MARKET • NEW COMPETITORS • SELLING OF LOAN INTO SECONDARY MARKET • SPECIALIZED SERVICES

  4. BASIC TYPES OF LOANS • SHORT TERM LOANS (< ONE YEAR) • TERM LOANS (>ONE YEAR) • REVOLVING LINES OF CREDIT - HYBRID BETWEEN SHORT TERM AND TERM DEBT

  5. SHORT TERM LOANS • SOURCES OF REPAYMENT - WORKING CAPITAL • ANALYSIS - COMPONENTS OF W.C. • FACILITY - LINE OF CREDIT • COLLATERAL - INVENT; A/R

  6. TERM LOANS • REPAYMENT - LONG TERM CASH FLOW • ANALYSIS - CASH FLOW • FACILITY - FIXED MATURITY AMORT • COLLATERAL - WORK CAP; FIXED A.

  7. REVOLVING LINES OF CREDIT • REPAYMENT - L.T. CASH FLOW or CONVERSION TO TERM LOAN • ANALYSIS - SIMILAR TO TERM LOAN • FACILITY -ADVANCES AGAINST COLLATERAL • BORROWING BASE

  8. SHORT TERM LOAN PROBLEMS • BANK NOT PAID AT END OF CYCLE • PRODUCTS NOT PRODUCED AS PLAN • CASH FLOW TO PURPOSES OTHER THAN REPAYMENT

  9. S.T. LENDER ERRORS • OVERESTIMATES PEAKS/TROUGHS • USE OF FUNDS NOT WELL MONITORED • TOO LITTLE MARGIN OF ERROR • HIGHLY SPECULATIVE INVENTORY

  10. TERM LOAN PROBLEMS • INADEQUATE SALES TO AMORT. DEBT • TOO NARROW PROFIT MARGINS • CASH ABSORBED AT HIGHER RATE • INFLEXIBLE MANAGEMENT • ASSET OBSOLESCENCE > LOAN AMORT.

  11. TERM LOAN LENDER ERRORS • FAIL TO ASSESS MANAGEMENT • FAIL TO UNDERSTAND INDUSTRY • INDEFINITE PROJECTION FROM PAST DATA • FAIL TO ANTICIPATE ADDED CAPITAL • OVERESTIMATE COLLATERAL VALUE

  12. REVOLVING LOAN PROBLEMS • FUNDS NOT USED FOR WORK. CAP. • VIOLATION OF SOUND CREDIT POLICY • SPECULATIVE INVENTORY • INSUFFICIENT PROFITS

  13. LENDER ERRORS IN REVOLVING LOANS • REACTS TOO LATE TO GET SECURITY • EXCESSIVE INVENTORY VALUATION • LENDER CARRIES BORROWER TOO LONG • FAILED LENDING PROCEDURES

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