Loans

Question 1

LOC credit admin issues

Answer 1

permanent WC

no resting period on seasonal

no terming out evergreen loans

Question 2

Is Flood insurance required on properties taken as an abundance of caution

Answer 2

Yes

Question 3

If there is discussion insurance what should you ask about?

Answer 3

Is there a deductible

Question 4

If there is high balance on line of credit, and/or overdrafts or new extensions, what should you inquire about

Answer 4

Has the bank discussed terming out the line of credit? Or assessed this as permanent working capital

Question 5

What should you look for on the borrowers balance sheet?

Answer 5

Changes in long term debt
Changes in subordinated debt
Other lines of credit

Changes in fixed assets (sales)

Question 6

What should you ask if the bank made a change to the bank’s interest rate or some other concession due to the borrower’s financial difficulty?

Answer 6

Did you designate this loan as a TDR?

Question 7

Credit admin questions to ask for CRE

Answer 7

Do you have assignment of rents

Do you receive updated rent rolls

Question 8

If there is a legal dispute with a business what should you ask?

Answer 8

Can the borrower withstand this type of loss? Is there any insurance coverage for the loss?

Question 9

What should you look for on borrower income statement

Answer 9

Extraordinary income
Bad debt expenses
Owners draws

Question 10

Should always check if collateral is

Answer 10

cross collateralized

Question 11

How should the bank monitor collateral for a floor plan loan?

Answer 11

inspections, documented to ensure inventory is in place

Question 12

What should you ask when dealing with an SBA loan

Answer 12

percentage of guarantee amount
would the SBA honor the guarantee?
Has the bank ensured the SBA information and documentation is correct

Question 13

If there is some kind of issue with collection, inventory, or particular business venture (lawsuit)… what should you ask?

Answer 13

Is the disputed or troubled amount included in Accounts receivable. This can affect the advance rate

Question 14

For a stock loan, what should you assess on the collateral?

Answer 14

Is the value current and how often they obtain updated assessments of the value

Question 15

What should you ask if there are environmental issues or if it is a lot development loan

Answer 15

Was an environmental assessment completed

Question 16

What are reasonable advance rates for A/R lines

Answer 16

70-80% receivables

and 20-65% inventory

Question 17

What are the requirements for a stock margin loan refinance

Answer 17

No new purpose statement is required if $ amount stays the same. New FRU1 statement is required if additional funds are advanced.

Question 18

What should the release prices on construction/development projects be?

Answer 18

125%

Question 19

Credit administration concerns for CRE loans

Answer 19

no rent rolls
no signed leases
lease rollover risk
incorrect appraisal

Question 20

What are SLTV limits?

Answer 20

• raw land = 65%
• land development = 75%
• Construction
  Multifamily and non residential - 80%
  Residential - 85%
  -Improved Property
  Commercial non construct- 85%
  1-4 mortgage - 90%

Question 21

Credit administration concerns

Answer 21

no inspection monitoring? is inspection independent?

project isn’t leasing up/stabilized as planned.

No interest reserve or it will be exhausted prior to completion

No borrower equity

high volume of spec homes

release price is lower than expected/required

no performance bond

Question 22

A/R days on Hand

Answer 22

A/R/Revenues * period

Question 23

What should you check in relation to real estate collateral?

Answer 23

• was appraisal necessary (over $400M or $1MM loans)
• was appraisal ordered prior to origination
• has there been any material change in the property?

Question 24

First steps of looking at credit line sheet.

Answer 24

Insider loan
Appraisal made prior to origination
Updated financial info

Question 25

If collateral has deteriorated and or destroyed, what should you ask?

Answer 25

If the bank has insurance, and if they will be able to collect

Question 26

what questions should you be asking once you realize this is a problem credit?

Answer 26

Why is the borrower behind in his payments?
Do you expect any improvement?
What is the banks workout strategy?
Is the business still operating?

Question 27

How should you classify an SBA loan

Answer 27

Pass if you can ensure the SBA guarantee is legitimate. Only pass the guaranteed amount.

Question 28

A/P Days on Hand

Answer 28

A/P/COGS * Period

Question 29

floor plan credit administration concerns

Answer 29

no curtailments
sold out of trust
no or overdue inspections
no verification of off lot vehicles
over financing used vehicles
not holding titles @ bank

Question 30

First thing to calculate for every loan

Answer 30

LTV

Question 31

Inventory Days on Hand

Answer 31

Inventory/COGS * Period

Question 32

What should the bank maintain for floor plan loans?

Answer 32

Titles of vehicles

Question 33

What are included in marketable securities to insiders for Reg O purposes?

Answer 33

Only include securities offered by US government or guaranteed by the US Govt

Question 34

What can preclude a retail charge off?

Answer 34

Loan can be written down to the value of non real estate collateral if it is in process of collection. Bank can take a recovery later