Commercial Lending Review — May-June 2009
By Stan Scott, Senior Vice President & Senior Credit Underwriter - Midwest Region
What Econ 101 can tell you about underwriting decisions.
A year into a deepening recession, nervous asset-based lenders find themselves in uncharted waters. The credit freeze accompanied by the silent run on the financial system has pushed banks, finance companies and hedge funds to reduce asset-based commercial credit exposure to repair balance sheets or meet redemption requests.
Turnaround consultants and attorneys are working overtime and will likely remain busy for years to come. The acquisition-binge stage of the credit cycle is over, replaced by workouts and reorganizations.
These circumstances naturally create opportunities for asset-based lenders to rescue creditworthy borrowers recently ushered to the door by their existing lenders.
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Commercial Lending Review — January-February 2008
By Stan Scott, Senior Vice President & Senior Credit Underwriter - Midwest Region
Best practices for a return to credit discipline.
Over the past decade, global economic expansion and money supply growth unleashed a seemingly endless flood of liquidity into the United States. Fueled by low interest rates and unregulated, easy credit, much of the incremental liquidity was channeled through hedge funds and private equity funds. Hedge funds have a thirst for leveraged investments, including subprime mortgage collateralized debt obligations (CDOs) and developmental stage companies bearing so-called high enterprise value. Private equity firms seek leveraged acquisitions in the commercial sector.
These newly important market players put pressure on commercial lenders of all types to streamline loan approvals and loosen covenants. Now it seems that credit expansion has peaked.
This article describes some of the changes that created an easy market for credit and suggests some ways in which lenders can reexamine credit quality and begin a return to fundamentals
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Commercial Lending Review — March-April 2007
By Stan Scott, Senior Vice President & Senior Credit Underwriter - Midwest Region
Why accrual-based accounting is just the beginning for small businesses.
Asset-based lenders must accurately gauge a borrower’s credit risk profile based upon its inherent value chain, life cycle stage and external environment, including economic and industry trends. Small business lenders cannot analyze borrowers in a vacuum and can gain the information they need online. To measure a prospective borrower, lenders must understand the demand/supply dynamics of the prospect’s industry as they affect cost structure, volume, pricing, distribution channels and capacity.
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Commercial Lending Review — January 2007
Credit Underwriting In a Topsy-Turvy World
By Stan Scott, Senior Vice President & Senior Credit Underwriter - Midwest Region
Why accrual-based accounting is just the beginning for small businesses.
The last five years has witnessed the roller-coaster U.S. economy fall in and climb out of a recession, race to a speedy recovery and then slow to a modest trot. The latest half-decade has ushered in a series of events — some of the man-made variety others natural in origin, which have echoed profound consequences across the globe leaving parts of the world embroiled in turmoil. Most notably and tragically, 9/11, followed by the ongoing Middle-East conflicts, the destructive hurricane season of 2005 and the recent retirement of long-time Federal Reserve Chief, Alan Greenspan to name a few. Today, U.S. leading economic indicators signal a slowdown to moderate growth with the announcement of 2Q’06 GDP growth rate of 2.6% on the heels of a robust performance the last 2 1/2 years propelled by elevated consumer and business spending sustained by relatively low unemployment, rising productivity, strengthening factory output and capacity utilization and expanding corporate earnings capped by a sizzling 5.6% spurt in real GDP in 1Q’06 — the fastest quarterly growth rate during the recovery period.
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The Secured Lender — November / December 2005
By Stan Scott, Senior Vice President & Senior Credit Underwriter - Midwest Region
Financial results must be weighed in the context of the borrower's strategy, inherent value chain, past results, management decision-making record, current economic trends and cycle and industry life-cycle stage, among other things, in order for the results to be truly meaningful. This is even more crucial for asset-based lenders today in light of the changing global economic climate characterized by overseas labor outsourcing, escalating international competition and industry consolidations resulting in the evolution of the U.S. domestic economy into a predominately service economy.
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