What are some of the main items reviewed by the analysts?
All commercial loans have their foundation rooted in the five (5) C's of Credit. The mortgage professionals at CRE-Finance reveals what criteria represent the most important parts of a commercial loan.
Character is evaluated based upon analysis of a person's history that includes factors such as their personal credit report and their previous commitment to repay debt. A strong credit score shows the willingness and discipline to handle indebtedness. Warning signs for character concerns include:
• Disputes with employees
• Borrowers willingness to share information
• Frequent changes with accounting firms and CPAs
• Management's knowledge of financial statements and affairs
• Prior resolution of difficult circumstances
Capacity is whether the customer has the available / free cash flow to service the debt. Strong analysis of past, current and future cash flows is necessary and the understanding of how does the customer receive payment for its goods and services. Other parts of a borrowers capacity include timeliness of payment, other sources of repayment is expected cash flow does not work and the probability of continued cash flow and likelihood of repayment.
Conditions of the loan are part of the criteria for making the loan that include the purpose of the loan and what is the use of the funds such as working capital, equipment, inventory, plant expansion or investment in technology of systems to grow or increase efficiency of the business. The local, state and national economic environment as well as regulatory and legal matters are conditions that may affect the loan.
Capital represents the total investment in the company or loan that is being provided. The amount of capital invested is a measurement of business leverage and provides an amount of money that is placed at risk if the business should fail. The greater the amount of capital as part of the loan transaction, the less likely the borrower and guarantor will walk away from the debt.
Collateral represents the amount of assets that are pledged against the loan for repayment which represents the secondary source of repayment. Personal guaranties are a tertiary form of support or collateral for the loan transaction. Collateral assets may include both business and personal assets such as real estate, fixed assets, accounts receivable and inventory.
If you have any questions regarding commercial real estate or are seeking financing, please contact Todd Tretsky at 212-257-7305 or Rich Tretsky at 212-257-7307 or visit us on the web at www.cre-finance.com.