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Empowering Small Business to Repay Debt

The Coming Paradigm Shift from Creditor to Debtor in Loan Repayment Solutions 

Understanding Credit Risk Terminology, Underwriting Standards and Guidelines 

Debtors will understand credit risk, use financial tools, and better negotiate a win-win

NCARA.org seeks to clarify, in simple straightforward terms, credit risk terminology, and how credit underwriting standards and guidelines function. It also seeks to put everything into context for the small business owner by explaining their importance. A paradigm shift needs to happen to help small business achieve their rightful place in identifying and documenting their own debt repayment solutions, especially in times of economic stress and uncertainty. 

 

Financial institutions or lenders of all stripes will likely, even gladly, invite debtors to present their own repayment solutions. Can you imagine the new role of small business in taking charge of their repayment strategies? Surely, these tactics will help ensure small business survival, not to mention the cost savings and efficiencies such a paradigm shift will create for the stakeholders. 

 

This shift will result in a win-win condition for the debtor and creditor. As more debtors fully understanding credit risk from the creditor’s perspective, together with simple financial tools readily available, small business will be able to better negotiate by seeing what the creditor is thinking; the parties will come to terms, and continue to reassess as needed. Yes, that’s what you call a win-win.

 

Detailed at NCARA.org, are examples of key credit risks, underwriting standards, and guidelines, including:

 

  • Abundance of caution

  • Accrual, non-accrual

  • Annual term loan reviews

  • Appraisals, evaluations

  • Approval process

  • Bankruptcy

  • Borrowing cause or purpose

  • Borrowing entity, ownership

  • Cash flow analysis and pro forma projections

  • Collateral

  • Covenants; financial performance, reporting

  • Credit facilities; loan types

  • Asset-based loans (accounts receivable, inventory)

  • Commercial and industrial loans (C&I)

  • Equipment loans

  • Commercial real estate; owner occupied; non-owner occupied

  • Construction loans; residential, commercial

  • Consumer loans

  • Land acquisition and development

  • Letter of credit

  • Lines of credit; working capital

  • Raw land

  • Single family residential real estate loans

  • Small Business Administration (SBA)

  • Standby letter of credit

  • Unsecured loans

  • Credit monitoring

  • Credit Presentations

  • Desirable, undesirable, prohibited loans

  • Documentation; Promissory Note, Loan Agreement

  • Environmental risk

  • Financial ratios

  • Financial statement requirements

  • Financial statement, tax return analysis

  • Foreclosure

  • Global cash flow

  • Guarantors

  • Industry and business risk analysis

  • Inspections; field visits

  • Insurance; title, hazard, flood, general liability

  • Interim financial statements

  • Loan structuring

  • Loan-to-value (LTV); maximum, minimum

  • Management

  • Other Real Estate Owned (OREO)

  • Overdrafts

  • Participation loans, sold, purchases

  • Pricing; interest rates, fees

  • Problem loan administration

  • Refinance risk

  • Renewals, Refinancing, Extensions, Modifications

  • Repayment sources; primary, secondary, and tertiary

  • Restructured “A” and “B” notes

  • Risk ratings; loan grades

  • Stale financial statements

  • Troubled Debt Restructured (TDR)

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