Estimating Seasonal Borrowing Needs and Ability to Repay

One of the most basic analytical and underwriting tools a banker must have is the ability to determine whether a borrower can repay its short-term borrowings based on the financial information available.

First, this presentation will explain the interrelationships among revenue projections, the expenses needed to support seasonal sales growth as well as the working capital assets, fixed assets, and liabilities necessary to support revenue growth. Second, the presentation will offer tips on how to analyzing underlying assumptions such as profitability, productivity, efficiency, and earnings retention.

Financial organizations extend credit to borrowers when the borrowers show the ability to repay the loans extended. Ideally, a request for a five-year loan should be supported by a 5-year cash flow projection, and a request for a seasonal line of credit should be supported by a 12-month cash flow projection to identify when the borrower is likely to borrow and when the borrower can repay the line of credit in full.  This session shows attendees how to construct a 12-month projection.

Topics covered in this session

• Critical role of revenues in projecting financial statements and cash flow
• Projection of income statement, balance sheet and cash flow to calculate loan needed to support projection and ability of the borrower to repay in full
• Evaluation of underlying assumptions including the feasibility of seasonal revenue growth rate, profitability, productivity, efficiency, earning retention, and leverage
• Calculation of loan amount needed to support financial projection and borrower’s repayment ability
• Analysis of asset collateral base available to support repayment

Who Should Attend:

• Credit analysts and underwriters
• Commercial lenders
• Business bankers
• Credit approvers
• Credit managers
• Commercial banking managers
• Loan review officers
• Loan workout officers