BankerCollege

There is an old saying in credit analysis, “Borrowers pay back loans from cash flow, not profits.”  But it is not just cash flow; it is cash flow from operations   that is the most desirable source of repayment because it is generated by a borrower managing its working capital assets and earning a sustainable profit.  This webinar will explain the difference between profits and cash flow as well as cash flow from operations vs. cash flow from financing and investing activities.  After all, borrowing from another lender or liquidating fixed assets to pay you back ultimately hurts the long-term viability of the borrower.  However, lenders are cautious risk-takers, and so they routinely take collateral and require owners to guarantee just in case cash flow fails.

Why should you attend: 

Credit analysts, underwriters, and lenders are expected to assess a borrower’s ability to repay from its operating cash flow, collateral, and guarantors, but are they making that assessment accurately and consistently?

Bankers hope that a borrower’s business generates enough cash flow to repay principal and interest, and the assets acquired with the borrowed funds usually are taken as collateral, e.g., inventory, equipment, real estate, etc.  The owners of the business are also expected to guarantee the loan as additional support.   Is there enough cash flow to repay, and if the borrower’s operations falter and the borrower defaults, is the collateral’s liquidation value and the guarantors’ adjusted net worth sufficient to pay off the loan?

This session offers guidance on how to estimate a reliable operating cash flow, collateral liquidation value, and guarantor   adjusted net worth.

Key Learning Objectives:  

Upon completion of this webinar, the participant will know how to determine a borrower’s repayment ability from cash flow, collateral, and guarantors for repayment ability:

• Global Cash Flow Analysis Methodology utilizing financial statements, tax returns and credit reports of commercial borrowers and individuals
• Comparison of more accurate operating cash flow method  to inaccurate traditional cash flow (profits plus depreciation) and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) methods of determining cash flow
• A free cash flow method which can convert EBITDA into operating cash flow
• Incorporation of guarantors’ cash flow and resources into global cash flow
• Evaluation of guarantor as a secondary repayment source by adjusting guarantor’s book net worth
• Assessment of collateral liquidation value as secondary repayment source
• Case study incorporating borrower and guarantor cash flows and collateral to assess ability of borrower-guarantors to repay proposed debt