Summary of the application

. A brief summary of the client, their business, what sort of finance they are seeking and
what it will be used for

Analysis of the application

i) Loan Suitability
. Consideration of whether the type and/or form of financing sought is appropriate for the
purpose intended
. Is the loan appropriate?
. How long? Does it allows for profits and cash flows for the client?
. Will it be able to meet the interest payment? Recover the loan?

ii) Affordability
. Analysis of the company’s ability to meet the loan requirement in the SHORTER TERM
. Ability to meet interest payments-INTEREST COVER

. Current profitability
. CONSIDER EXCEPTIONAL ITEMS
. Cash flows (breakdown of cash flows) (operating cash flows to interest – Cash interest
cover)
. Revenue growth, gross profit margin, operating margin

. Consider if the customer has other debts/loans, overdraft and any other interest payments
. Consider the reasonableness of forecasts (if any) and whether they are over optimistic in
order to acquire the finance. Exercise professional scepticism in order to verify the
assumptions underlying these forecasts

iii) Viability
. Analysis of the company’s ability to meet the loan requirements in the LONGER TERM,
including the capital repayment

. Ability to meet interest longer-term and repay loan at end of term

. Current and forecast levels of debt and Debt-to-income ratio
. May consider applying covenants in order to prevent the client in acquiring other
loans/debts

. Forecasted cash flows, profits, credibility of forecasts

. Any other events, expansion plans, customers, evolution sector, competitive factors
 iv) Security
. Consideration of the collateral (if any) which could be pledged for the loan

. Fixed or floating charge over the company’s non-current and current assets
. Non-current assets of the business which could serve as security/ what are they/ how
much they value ?/ easy to sell?/ liquid / can they cover the loan ?
. Seek to obtain up to date external professional valuations on all PPE to asses its real value
. Whether assets are pledged as security on other borrowings
. Company’s valuation policy of its assets? (Historic cost – FV now, lower or higher ?)

. Consider requiring a WAIVER from other lenders to the company about the priority of the
payment of the bank loan in case of liquidation,

. Personal guarantees offered by the owners / Are hey wealthy enough?

v) Financial stability

. Efficiency ratios: Receivables/Payables/Inventory days

. Working Capital in general
. Is it expected to have low or high receivables (do they accept credit according to the
business)
. Suppliers’ relationships, new suppliers etc.
. Liquidity issues arising from long receivables and short payables days
. Dependency of the business on current supplies/customers and its ability to cope with new
contracts

. Operating cash flows and profit

. Ratios such as interest cover, current ratio

. The dividend policy of the company

vi) Capital Structure

. The current and future fundings of the business:
- Levels of gearing (Gearing ratio = Debt/Equity)
- Current shareholdings/ownership structure
- Planned future shares issue

. Its ability to finance the business capital requirements from its equity
. High equity amounts represent a good financial strength and well-developed capital
generation
 vii) Track Record of Management
. Analysis of management including
- Length of time running the business and previous successes/difficulties
- Personal skills, experience, age, and balance of the team
- Their reputation in the marketplace
- Risk appetite (risk-taking, prudent, innovative)
- Strength of the internal finance function
- How they add value to the business

. It would be useful for the lenders to understand the key drivers and motivation for
management, including their remuneration and their holdings in the business

. Background checks and credit references will need to be obtained for evidence of credit
history

. The owners leave significant amount of profit in the business and are now expanding in
new areas

. Covenants restricting future dividend payment and director’s remuneration may be applied
on the loan.
Additional information

. Notes to the financial statements

. Assumptions underlying forecast figures
. Fair values of existing property portfolio
. Terms, Conditions, covenants and security for existing borrowings
. Sensitivity analysis of forecast figures to sales, costs etc.
. Audited complete financial statements
. Market research to assess the market for the new product that the company wishes to
produce