Lecture 2- Credit Management Process Flashcards
(21 cards)
What is the credit process?
loan application credit analysis credit proposal credit approval letter of offer acceptance Activation Credit review
When does the credit process end
loan written off as bad
customer pays off debt
What are the 4 main groups of businesses
sole proprietors
partnerships
companies
LLP
How do you assess the risk of lending to the different entities?
capital structure
management capabilities
profitability
What are the bank’s respond to a loan request
acceptable in its current form
acceptable if amended
not acceptable
What are the canons of lending?
character ability means purpose amount repayment insurance profitability
How do you assess character of a customer?
history of business ownership management human capital standing in the trade track record with banks
How do you assess ability of a customer?
background of management
financial
business operations
What are the purposes of a loan
finance working capital
purchase fixed assets
new venture
What are inappropriate loans?
illegal loans
ultra vires
gambling and speculative
How does a bank decline a loan application?
reason for refusal explained
identify the corrective action
What are the questions to ask about the history of a business
how old
founders connected
major problems in the past
culture ambitious or unambitious
What are the questions to ask about ownership?
who owns the business
owners have partial or full control
are the owners actively running the business
consequence of death of owners
What are the questions to ask about management?
management structure (size and type)
average age and responsibilities of management
proper succession planning
do they have their own resources tied into the business
how well do they plan ahead
do they cope well with crisis and unexpected circumstances
are they able to grow with the business
What are the questions to ask about human capital?
well run unit?
good calibre of staff?
motivation of staff
turnover rate vs. industry
What are the questions to ask about standing in trade?
well respected? loyal client base? public relations? credit agency rating social responsibility and environmental protection
What are the questions to ask about track record?
how accounts have been conducted
competency of CFO, finance team
What are the questions to ask about background of management?
experience and age
competency and qualification
clear strategic directions from CEO?
cohesiveness and dynamics
What are the questions to ask about financial?
timely financial reporting
integrity of financials info
availability and reliability of financial info
profit trend
capital structure
liquidity position
buffer for contingent liabilities and capital commitments?
sensitivity to external factors
robust internal controls and information system
What are the questions to ask about business operations?
product quality and diversity
market share
coping with trends and change
optimal use of resources
productivity level meets standards?
physical resources able to deal with operations and planned expansion
human capital skilled and unskilled available and trained?
strategies implemented achieving goals set by management ?
What are the questions to ask about means of a company?
acccess to capital equity injection or bank borrowing
white knights
personal wealth
realisable values of company’s assets- liabilities
available credit facilities
