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Commercial Lending Process Explained

Posted on | by admin-dev | Leave a Comment on Commercial Lending Process Explained

Many business owners approach their banks and the commercial loan process assuming things will be similar to their experiences securing a personal loan for a home or a car. However, that is most often not the case and can cause confusion and lost time.

The commercial lending process differs from most consumer lending, such as residential mortgage lending, in that there are no hard rules or ratios that make a loan either acceptable or unacceptable.

The commercial loan process is a bit more of an art than a science. However, the underwriting process of sound commercial lending is not the mystery it may seem to be. It is simply a process of information gathering (or due diligence), financial analysis, and informed decision-making.

The process described in this article is typical for a new client; an existing client with an established history would most likely encounter a more streamlined process. While the process outlined here may seem rigorous, remember there are many components to consider in the decision-making process and every business has its own unique story that needs to be understood.

All of these factors, coupled with the fact that banks are highly regulated and are lending depositors’ and shareholders’ money, makes it clear that there is little room for wrong loan decisions. That is why there are typically several potential sources of repayment for a commercial loan — cash flow, collateral, and guarantors. To analyze these repayment sources, the bank must first get to know and understand the prospective borrower. The areas of focus include:

  • Meeting With Company Management
  • Background of Your Company’s Industry
  • Company Credit Needs (Current and Proposed)
  • Company History
  • Company Financials

Details of the bank’s commercial credit analysis on the five items above lead to loan decisions, so it is important for business owners to know how to clearly and concisely represent themselves in the process.

Meeting With Company Management

The bank’s due diligence process begins by meeting with company management. General information about ownership, management, products and markets, finances, and brochures contribute to an understanding of the business. These provide important background information, and give the banker a perspective of management’s understanding of the business.

Financial Information Required In The Commercial Loan Process Includes:

  • Year-end balance sheets and income statements for the past three years
  • The most recent interim financials along with corresponding statements from the prior year and the annual budget
  • Business tax returns (if year-end statements are unaudited)
  • Accounts receivable aging and possibly accounts payable aging
  • Personal financial statements and personal tax returns because the owner(s) typically personally guarantee the debt for most privately held businesses

The bank is trying to determine, “Does management understand the company’s financial statements, competition, and competitive advantages?”

Ideally, the banker has at least one meeting at the business location to provide a tour of the facilities. This allows the banker to observe the general working environment, equipment quality and upkeep, and inventory control and management. It also provides an insight into management’s understanding of the operations.

The management assessment includes not only the owners but also other key personnel. Relevant information includes individuals’ names, areas of responsibility, tenure with the company, and prior experience. The goal is to get a solid determination of management’s experience level and depth. Some businesses rely heavily on a key individual, and this risk needs to be addressed, possibly with life insurance on the key person.

Who Should You Include In The Company Management Meeting?

 

See the full story here. 

Why Is College So Expensive?

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Why is college so expensive? There are a lot of reasons — growing demand, rising financial aid, lower state funding, the exploding cost of administrators, bloated student amenities packages. The most expensive colleges — Columbia, Vassar, Duke — will run you well over $50K a year just for tuition. That doesn’t even include housing! The cost of college is out of control. So what can you do to fix it? Well, nothing really, but if you’re smart, you can work around it, especially with the opportunities afforded by the growing online college sector. We’ll find out why college is so expensive, and we’ll tell you how you can cut costs.

The cost of college is crazy. Take it from us. This is all we do and we’re constantly blown away by the eye-popping pricetag for some college degrees.

Do you know that tuition for public colleges alone more than quadrupled between 1980 and 2015?

According to CNBC, college tuition was far more affordable for older generations. Citing figures from College Board, CNBC reports that, adjusting for inflation, the cost of private schools rose by 129% since the 1980s. The cost of public school rose by an even more staggering 213%.

By contrast, wages across the board have increased by just 67% since the 1970s. A college degree still provides advantages to its holder, but Business Insider, concedes that these advantages are lesser than they were just a decade ago.

Meanwhile, according to CNBC, students graduate with an average of $37,172 each. All of this amounts to $1.5 trillion in collective student loan debt shared amongst 44 million Americans.

Since we’re all here to learn, I’ll ask a purely academic question. Why is college so freakin’ expensive? And why does the cost continue to climb if the value proposition is on the decline?

I’m not an economist, so I won’t make any font-bold predictions about this big education bubble bursting any time soon. Even with these shrinking advantages, graduates still earn more than non-grads over the course of a lifetime.

But what are some of the causes behind this explosion in cost, and what can you, as the consumer, do about it?

If you just want to skip to the part where we tell you about the cheapest online schools, go ahead and check out The Most Affordable Online Colleges for Bachelor’s Degrees.

If, instead, you’d like to learn more about the deeply ingrained and overlapping reasons college is so expensive, here they are:

 Amenity Madness

It turns out that the insane cost of college is a condition somewhat unique to the United States. An article from The Atlantic points out that the combined contributions of individuals, families and government amount to roughly $30,000 in expenses per student per year. This, reports The Atlantic, is about double the average amount per student across the rest of the industrialized world. There is no evidence that this expense has produced superior academic outcomes or professional opportunities.

There is, however, some evidence that our collective desire for the all-frills college experience plays a role. American universities are unique for the residential comforts they offer (and charge for). Items classified as ancillary services — climbing walls, state-of-the-art mega-student centers, seriously pimped-out dormitories — these things do cost money.

According to The Atlantic, American taxpayers float more than $3,000 per year per student for these ancillary services alone. This is three times the average for such expenses in the rest of the developed world. The Atlantic does point out that residential campus experiences are more commonplace in the U.S. — that a largely proportion of students in Europe and Canada may not leave home for an on-campus living experience. In other words, college is different here. College is intended as a more comprehensive life experience as opposed to just an academic one. This experience does carry with it the inherent costs of widespread on-campus residency.

See the full article here.

Do Credit Repair Companies Really Work?

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Do Credit Repair Companies Really Work?

Legitimate ones can help you, but beware of scams

By

MATTHEW D’ANGELO
Updated September 26, 2022

Reviewed by

CHIP STAPLETON

Fact checked by

YARILET PEREZ

Credit repair companies offer to help consumers improve their credit scores in return for a fee. Some are legitimate businesses, while others are little more than scams. Here is what a credit repair company can, and can’t, do for you.

KEY TAKEAWAYS

  • Legitimate credit repair companies can help you remove inaccurate information from your credit report, which may be damaging your credit score.
  • However, they can’t do anything for you that you couldn’t do on your own—and for free.
  • Beware of scam credit repair companies that make promises they can’t fulfill and often demand money upfront.

Click Play to Learn the Truth About Credit Repair Companies

Understanding Credit Repair

Consumers’ credit scores are based on a number of factors, including whether they pay their bills on a timely basis. Missing payments can hurt their credit score and, in turn, make it more difficult for them to obtain other credit, such as a mortgage or car loan, in the future. A poor credit score can also mean having to pay higher insurance rates and even make it more difficult to get a new job or rent an apartment.

Credit scores are calculated based on the information in the consumer’s credit report, and sometimes that information is inaccurate. That can happen when creditors report erroneous information to the credit bureau or if an identity thief takes out credit in the consumer’s name.1

Credit repair is the process of trying to correct those problems. If the information is accurate, there is little that anyone—even a professional credit repair company—can do to change it. In most cases, it will remain on the credit report for up to seven years, after which it will disappear.2

However, if any of the information in a credit report is inaccurate, the consumer has a right to dispute it. They can either do it by themselves or pay someone else to help.

Bear in mind that there is nothing that a credit repair company can do for you that you couldn’t do on your own.3 But you might consider hiring one if you feel overwhelmed by the process or simply don’t want to devote your time to it.

How Credit Repair Works

The first step in repairing your credit is to obtain your credit reports and check them for accuracy. By law, you’re entitled to one free credit report every 12 months from each of the three major national credit bureaus—Equifax, Experian, and TransUnion.4 The official website for obtaining your free credit reports is AnnualCreditReport.com.

Note that the information in your credit reports can differ from bureau to bureau. That’s because some of your creditors may report to one of them but not to the others.

Once you have your credit reports in hand (or on-screen) review them for errors. If they report late payments, for example, check your records to see if that’s true. Check, too, for any accounts that you don’t recognize. That could be a sign that someone else has opened an account in your name.

In case you discover errors, the Federal Trade Commission (FTC) outlines a dispute process you can follow.5

The FTC first suggests writing to the credit bureau (or bureaus) in question. Explain which information you’re disputing and attach photocopies of any documents that support your case. You can also contact individual creditors directly to contest information that they supplied to the credit bureau.

The law requires that the credit bureau investigate your claim within 30 days unless it considers it frivolous.3 The bureau must also provide your letter and supporting documents to the creditor that supplied the disputed information. The creditor is required to investigate your claim and report back to the credit bureau.

See the full article here.