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How To Think Like A Lender- Getting To Yes
Scott Wait, CPA, AEPRich Wait, CPA, CVA, AEP
Welcome
The ideal relationshipCredit Worthiness – The Five C’s tests
Capacity and Capital Collateral and ConditionsCharacterLender Risks
A borrower’s image of lenders
The ideal relationship
• Ask when you don’t need it / identify financing purpose • Strategic supplier• Be transparent - your story is important• Get documents in order• Find lender who understands your industry• Communicate regularly• Know lender’s competitors• Optimize cash flow
Credit Worthiness – The Five C’s tests
Will you pay me backAnd
How?
Capacity & Capital
• The Capacity Test – $$$$$$
– Borrower’s viewpoint / Lenders viewpoint– The ability to pay, monthly
• Assets matching debt
• Cash flow coverage, definition and analysis
• The Capital Test – – Debt to Equity, personal and business
– Unrealistic values, net worth
Collateral & Conditions
Collateral Test- Loan-to-value ratio- What is green light ratio?
Conditions Test- Local / National economy- Borrower’s financial condition- Credit rating
Character
Character Test is a comprehensive test
- Integrity- Lifestyle
Top Lender Risks
Elements of risk
• Inexperienced Management Team• Lack of Management Depth• High employee turnover (Key employees not locked into a
contract)• Contingent Liabilities• Lack of Customer Diversification• Poorly Maintained Assets• High Operating Costs• Frequent Contract Renewals / Bidding• Lack of Succession Plan• Employee Fraud• Cyber Fraud
Advisors and lending process
CPA’s and trusted advisors in the lending process act as a critical advocates, liaisons, and educators to companies as well as to commercial lenders. The process can be arduous. The right advisor can make the process easier, improve the communication and the evaluation process for the lender, and help the client get to yes.
Scott Wait, CPA, AEP Rich Wait, CPA,CVA, AEP [email protected] [email protected] 775.825.7337
Contact Information