【正文】 the credit and collections department ?Leasing ?Franchising or Venture Capital ?Other term lenders eg. GE Capital ?Public Equity Markets 40 Credit Analysis Identifying NonBank Sources of Financing 3. External government Sources ?Grants ?Fivable Loans ?Direct loans ?Government Guarantees ?Tax breaks ?Direct equity investments in the firm 41 Credit Analysis Part III. Loan Structuring 1. Identifying the Amount and Form of Bank Financing 2. Lending and the Legal Environment 3. Securing the Loan 4. Lending and Environmental Law 5. Pricing the Loan 6. Designing the loan agreement and loan covenants 42 Credit Analysis The Amount and Form of Bank Financing The Initial Screen ? Is the deal “bankable?”. Does it have acceptable risks relative to the return? Is the return adequate to pensate for the risks accumulated and the cost of servicing the account. ? Banks are in the business of granting loans that they consider to be relatively low risk. ? Prepare a list of pros and cons ? Turning down the loan should include a frank discussion of the pany’s problems and options 43 Credit Analysis The Amount and Form of Bank Financing Setting the loan limit ?Determine the client’s ability to pay ? Cash flows are derived from internally generated funds. Longterm loans can only be repaid from profits if the business is to remain a viable entity. ? Enforced liquidation of the pany’s assets is a “fallback” position, should cash flows from operations fall short of requirements ? Injection of owner’s capital is it available if needed? ? Collateral security determine the lending value of accounts receivable and inventory or the value of the fixed assets 44 Credit Analysis The Amount and Form of Bank Financing ?Banks normally finance 75 to 80 percent of the cost of fixed assets ?100% financing may be warranted if the assets could be readily sold at their purchase price or if the customer has additional collateral to support the loan ?The amount of the loan should be sufficient to meet the customer’s financial needs 45 Credit Analysis The Amount and Form of Bank Financing The Repayment Term ? The term of the loan is the time period during which the loan payments are fixed. ? The amortization period is the period over which the loan is scheduled to be repaid. For example, someone purchasing a house may have a mortgage with a term of 5 years but amortized over 25 years. ? Repayment period depends on what the money is being used for ?Transaction loans are for temporary funding eg. a bridge loan 46 Credit Analysis The Amount and Form of Bank Financing ? Operating loans (floating prime based loans) are used to finance a pany’s accounts receivable and inventory and fluctuate as the firm moves through different selling seasons ? Letter of credit says that the bank will pay a certain sum on the delivery of specific documents to the bank. They are monly used for international trade. When the bank pays, they will then require payment from the borrower ? Term loans used to buy specific fixed assets and will be paid out over time from the cash flows the asset generates 47 Credit Analysis Lending and the Legal Environment ? A secured creditor is one with specific legal rights against particular assets of the debtor which may be exercised, should the debtor fail to fulfill promises given to the creditor ? An unsecured creditor is anyone to whom the debtor owes money the unsecured creditor has no specific rights against the debtor’s property, other than the general right to sue for enforcement of the debtor’s promise to pay. ? A basic understanding of the legal system is essential to those making decisions on mercial credit 48 Credit Analysis Securing the Loan ? Role of collateral security involves 3 tasks ?Determine available assets that could be pledged as collateral and estimate their realizable value as a secondary source of repayment. ?Be knowledgeable of the procedures for documenting and registering a security interest to ensure that the bank’s interest are protected ?Monitor the borrower’s collateral position over time 49 Credit Analysis Lending and Environmental Law ? Legislation may increase default risk in several ways ?Legislation which restricts how a borrower can carry on its business eg. controls on emissions or waste disposal increases the cost of running a business ?The value of the security may be diminished by environmental damage to collateral security ?If the lender assumes controls of the borrower’s assets, the lender may face the cost of cleaning up the site under environmental legislation. Such costs may well exceed the value of the loan. ? If environmental risk is a concern from the start, it may be better to decline the loan. 50 Credit Analysis Pricing the Loan ? A bank seeks to earn a positive margin between what it earns on all of its financial assets (primarily loans to businesses and consumers) and the cost of its funds (deposits). ? Net interest ine is critical to a bank’s profitability! ? Factors in the loan pricing decision include ? Perceived default risk on the loan ? Cost of handling the account ? Profitability of the entire relationship including fees charged ? Negotiating ability of the borrower and account manager ? Competitive conditions between financial institutions 51 Credit Analysis Pricing the Loan ? Take into consideration the type of risk rating system. Which kinds of loans are excellent, very good, good and acceptable? ? Consider the bank’s required return on capital. Typically 1520% ROE. Capital is the long term funds invested in a bank in the form of debentures and various forms of equity. The greater the risk, the greater th