1. Personal and Corporate Guaranties. In order to prepare for an accurate global cash flow analysis, you need to know who will provide guaranties for each loan request. Welsh points out a key question to ask: “How many loan officers rely on interviewing their prospective borrowers regarding ownership structure?” He notes that it is crucial to identify and document ownership, guarantors and signers earlier in the process.
2. Closing Costs. It is important to know the amount of cash the borrower brings to the closing table to better understand all of the commercial closing costs. Before submitting the loan presentation, determine what closing costs will be rolled into the final loan amount, as unanticipated costs can lead to a loan resubmission and change key ratios, such as debt service coverage.
3. Borrower’s Down Payment. Before you prepare the initial cash flow analysis and loan presentation, determine the borrower’s source of funds for the down payment. Otherwise, there is a risk of possible loan resubmission to correct the loan amount, cash flow analysis, and debt service coverage.
4. Loan Disbursement. Welsh advises financial institutions to develop a loan disbursement plan. “Think about how the loan will be disbursed at closing while you are preparing the initial commercial loan presentation. Will the way you intend to disburse the loan proceeds be consistent with your core system parameters? What if funding is delayed and disbursement costs increase?” He also says to include paid-outside-closing backup plans for system delays and disbursement contingencies to be paid by the borrower.
5. Loan Structure and Use of Proceeds. The final step of Welsh’s process includes checking that the loan process are adequate to complete the loan transaction in light of your borrower’s loan purpose and closing costs. Constructing a basic commercial closing statement within the loan presentation helps commercial loan officers broaden their expertise across diverse commercial transactions.
With Welsh’s suggestions in mind, Peter Brown of Sageworks hosted a webinar that covers improving loan presentations:
• Develop the right content,
• Create consistent formatting and
• Automate the process.