Putting it all together:

Credit proposals. and what comes

afterwards
 SME-specific credit policies & procedures:
some thoughts

Strong emphasis on character, in view limited financial
information and collateral

International experience: businesses that pay their tax regularly
are better borrowers

Review of financial analysis process

Collections: more regular than corporate clients?

Monitoring: more regular than corporate clients

Crucial to monitor portfolio exposure by source and stability of
income

Pricing: spreads should be higher to compensate for extra work
and risk

Credit decision should be made independent of availability of
collateral

Saleability of collateral likely to be more problematic than for
corporates
© Andrew McRobert & Associates (2012)
Does the effective yield on the transaction
adequately reflect the position of the
transaction on the lenders risk/reward
scale?

© Andrew McRobert & Associates (2012)

 Have You Considered:

Applicant’s character;

Sustainable operating cash flows;

Hurt money, equity and rough times;

Adequacy of collateral or a loan without collateral;

business environment, competitive strategy and risks and
threats; and

Lender’s target market criteria, credit policies and credit
procedures.

IF NOT, WHY NOT?

© Andrew McRobert & Associates (2012)

 SME documentation: some
thoughts
 Simple language
 Standard documents:
 Product brochures
 Application forms
 Loan agreements (Standardised, but with one-page
insert: “Special Conditions”)
 Collateral documentation
 Re-draw request with covenant restatement
 Brief annual review format

© Andrew McRobert & Associates (2012)

 Contents of a credit proposal

Borrower

What is to be approved and at what level

Purpose

Pricing

Collateral

Target market

Aggregate exposure and attitude to sector

Financial analysis

Risks

Any other information

Recommendation

Approval

© Andrew McRobert & Associates (2012)

 Attachments to a credit
proposal

Borrower detail schedule

Detailed financial analysis and spreadsheets

Terms and conditions

Collateral and valuations

Personal net worth statements

Pricing and return on risk-adjusted capital calculation

© Andrew McRobert & Associates (2012)

Don’t settle the transaction unless you have
received everything that your loan approval
required

© Andrew McRobert & Associates (2012)

 Settlement

Has all the documentation been signed and
delivered?

Has all the security been made available at
settlement?

Have your lawyers done a last-minute search?

have the legal formalities (if any) in regard to
independent legal advice for guarantors been
followed?

Is the bank’s Operations Department
comfortable?

Does the borrower fully understand their
obligations?

Is there anything that worries you?© Andrew McRobert & Associates (2012)
 Portfolio management & review
 Break up of portfolio by Industry segment, and type of equipment
 Diversification:
 Sectoral
 Geographical
 Asset diversification
 Trends in the borrower's country
 Trends in the borrowers' industries
 Targeting industries
 Legislative change and product development
 Annual review:
 Warning signals
 Financial statements
 Covenant review
 Account relationship review

© Andrew McRobert & Associates (2012)

 After the deal is done

Put the documents away:
 Legals  Legal files
 Everything else to account/borrower file
 Clear your desk file

Make sure registrations are completed

Enter follow-ups in the diary system

Make sure the client understands the regular reporting

requirements

IF YOU DON’T DO IT NOW, IT WILL BE OVERLOOKED

© Andrew McRobert & Associates (2012)

Annual review checklist: suggested format
Note: This format is only applicable to fully drawn committed term facilities

Have you done a current credit check? Y/N

Is there any significant adverse reference? Y/N

Have you received annual financials?

Is there any evidence of material deterioration in financial condition? Y/N

Is there any evidence of material deterioration in financial or
operational performance? Y/N

Are you aware of any adverse change in the business environment? Y/N

Have you visited the client’s main operating premises? Y/N

Is the borrower up to date with all obligations? Y/N

Have all insurances been renewed, and are the bank’s interests noted? Y/N

Has the borrower breached any covenant since the last review? Y/N

Are all documents in order? Y/N

Do you consider there are immediate opportunities for
additional business from this borrower? Y/N

Recommended__________, __/__/__ Approved_____________, __/__/__

© Andrew McRobert & Associates (2012)

IN THE FINAL ANALYSIS
(particularly with SMEs)

GO SLOWLY INTO A BANKING

RELATIONSHIP, NOT QUICKLY
INTO A BANKING TRANSACTION

© Andrew McRobert & Associates (2012)