© South-Western Publishing Slide 11
COMMERCIAL LENDING
8.18.1 Commercial Loans8.28.2 Commercial Credit Analysis8.38.3 Small Business Loan Programs
88
© South-Western Publishing Slide 22
Lesson 8.1
COMMERCIAL LOANS
List purposes for commercial loansIdentify types of commercial loans
GOALSGOALS
© South-Western Publishing Slide 33
THE NATURE OF COMMERCIAL LENDINGTHE NATURE OF COMMERCIAL LENDINGTHE NATURE OF COMMERCIAL LENDINGTHE NATURE OF COMMERCIAL LENDING
Commercial lending is lending to business enterprises.
Commercial lending practices may apply to individuals, such as a person who is buying rental property.
© South-Western Publishing Slide 44
COMMERCIAL PURPOSESCOMMERCIAL PURPOSESCOMMERCIAL PURPOSESCOMMERCIAL PURPOSES
Real estateConstructionEquipmentOperations
© South-Western Publishing Slide 55
TYPES OF COMMERCIAL LOANSTYPES OF COMMERCIAL LOANSTYPES OF COMMERCIAL LOANSTYPES OF COMMERCIAL LOANS
Term loansShort-term loansLines of creditReal estate and equipment loansContract financingBridge loansLeasingAsset-based loans
© South-Western Publishing Slide 66
Lesson 8.2
COMMERCIAL CREDIT ANALYSIS
Identify basic ratios used in commercial underwritingList other items used to evaluate commercial loansExplain the importance of disclosure in commercial loans
GOALSGOALS
© South-Western Publishing Slide 77
COMMERCIAL CREDIT ANALYSIS TOOLSCOMMERCIAL CREDIT ANALYSIS TOOLSCOMMERCIAL CREDIT ANALYSIS TOOLSCOMMERCIAL CREDIT ANALYSIS TOOLS
Debt ratio is the total obligations compared to the total income.
Loan-to-value ratio is the principal amount of the loan divided by the value of the securing property.
Debt service coverage ratio (DSCR) compares net operating income to the total cost of debt.
© South-Western Publishing Slide 88
DEBT RATIODEBT RATIODEBT RATIODEBT RATIO
Debt ratio Debt ratio Debt Debt Income IncomeExampleMonthly debt: $1,500Monthly income: $3,000
$3,000 50%
$1,500
© South-Western Publishing Slide 99
LOAN-TO-VALUE RATIOLOAN-TO-VALUE RATIOLOAN-TO-VALUE RATIOLOAN-TO-VALUE RATIO
Loan-to-value ratio Loan-to-value ratio Principal Principal Market value Market valueExamplePrincipal: $45,000Market value: $100,000
$45,000 45%
$100,000
© South-Western Publishing Slide 1010
DEBT SERVICE COVERAGE RATIODEBT SERVICE COVERAGE RATIODEBT SERVICE COVERAGE RATIODEBT SERVICE COVERAGE RATIO
Debt service coverage ratio Debt service coverage ratio Net operating income Net operating income Total debt service Total debt serviceExampleNet operating income: $650,000Total debt service: $520,000
$650,000 1.25
$520,000
© South-Western Publishing Slide 1111
OTHER EVALUATIONOTHER EVALUATIONOTHER EVALUATIONOTHER EVALUATION
In order to perform ratio and other analyses of a company’s finances, lenders want full access to company financial records.
Typically, lenders want to examine the following.Federal and state income tax returns for three yearsCompany financial statements for three yearsYear-to-date profit and loss and balance statementsProjected cash flow estimates for at least the coming yearValuations and appraisals for collateral used to secure the loanWritten business planPersonal financial statements of owners
© South-Western Publishing Slide 1212
DISCLOSURESDISCLOSURESDISCLOSURESDISCLOSURES
Most commercial lending is regulated only by the terms of the loan agreement and some state laws.
It is the ethical and professional responsibility of all parties to commercial lending to see that loans are honestly and soundly underwritten.
© South-Western Publishing Slide 1313
Lesson 8.3
SMALL BUSINESS LOAN PROGRAMS
Describe the purpose of the SBAExplain SBA loan eligibility requirementsIdentify SBA loan options
GOALSGOALS
© South-Western Publishing Slide 1414
THE SMALL BUSINESS ADMINISTRATIONTHE SMALL BUSINESS ADMINISTRATIONTHE SMALL BUSINESS ADMINISTRATIONTHE SMALL BUSINESS ADMINISTRATION
The Small Business Administration (SBA) offers a number of financial, technical, and management programs to help businesses.
© South-Western Publishing Slide 1515
SBA ELIGIBILITYSBA ELIGIBILITYSBA ELIGIBILITYSBA ELIGIBILITY
Type of businessSize of businessUse of loan funds
© South-Western Publishing Slide 1616
SBA LOAN TERMS AND CONDITIONSSBA LOAN TERMS AND CONDITIONSSBA LOAN TERMS AND CONDITIONSSBA LOAN TERMS AND CONDITIONS
7(a) Loan GuarantySBALowDoc and SBAExpressCAPLinesMicroloansSpecial-purpose programs
Community Adjustment and Investment Program (CAIP)DELTA programEconomic Injury Disaster loansSmall Business Investment Company (SBIC)