Seasonal Loans

Question 1

Two Objective In Seasonal Loan Analysis

Answer 1

Determine When current assets and liabilities peak and when they bottom out.

Question 2

Informal Borrowing Base

Answer 2

That the borrower will demonstrate at the end of a specific period that it is in compliance with borrowing base on that date. Advance rates are also more conservative.

Question 3

Reports Need for Seasonal Loan

Answer 3

Interim Balance Sheet
Cash Budget Reporting
Any custom reports that will enable bank to monitor actual versus AR, Inv., and loan balance

Question 4

Peak Risk

Answer 4

Occurs when inventory is at its peak.

Question 5

Loan Risks: Liquidation of Assets

Answer 5

Liquidation of Inventory or collection of AR may not take place as anticipated
Risk of converting raw material and WIP to make finished goods
Are there external risks that the borrower can’t control such as changing market conditions
Failure to liquidate current assets as expected reduces financial flexibility

Question 6

Loan Risk Supplier Payment

Answer 6

Supplier aren’t paid at the end of the season, so they withhold trade credit

Question 7

Seasonal Loans: Non-repayment Optoin

Answer 7

1. Term the loans out
2. If inventory is marketable use a borrowing base/working capital loan.
3. New debt or equity
4. Pledge of fixed assets
5. Liquidation of Inventory

Question 8

Peak Borrowing Occurs when

Answer 8

Probably when AR is at its peak, but depends on availability of trade credti

Question 9

Inventory Advance

Answer 9

Low advance rate for inventory with short shelf life