When analyzing a commercial customer using FINPACK Credit Analysis, there are several tools available. Deciding which tool best fits the analysis needed is important to get the optimal information, in order to reduce risk in the customer credit decision. The type of business and customer information available will drive the commercial analysis tool used.
Financial Analysis Tools
- Commercial & Industrial (C & I) Business Analysis – this tool uses data from the business income statement or tax forms and corresponding balance sheet to analyze the business on a common sized and percent change basis. In addition, RMA comparisons can be used to further analyze the business versus its peers. This analysis generates common debt coverage, liquidity, leverage, and efficiency ratios and a UCA cash flow as well.
- Commercial Real Estate (CRE) Analysis – this tool analyzes the key metrics for an income-producing, investor-owned (non-owner occupied) real estate property. Historical tax or income information can be spread and compared to projected net operating income, or a new property with no history can be analyzed as well. This analysis tool also analyzes the supportable loan amounts and vacancy rate thresholds for a property. The information can also be stressed to fully analyze the impact of vacancy, rental rate, and interest rate scenarios.
- Global Cash Flow – this tool is used to analyze the global debt servicing capability of multi-entity borrowers. This analysis tool provides a debt coverage analysis of each business and individual borrower/guarantor of the credit relationship. All of the individual information is then combined to analyze the overall use of cash and global debt servicing capabilities of the overall borrowing relationship.
- Cash Flow Projections – this tool enables you to run either an Annual Cash Flow Projection or a Monthly Cash Flow Projection. Both tools allow using the customer’s tax form or income statement to create pro forma statements, calculate debt coverage and other ratios, and provide the ability to complete multi-year plans. Choosing the projection tool to use depends on the situation. The Annual Projection offers an annualized summary projection. This type of projection is best for a quick profitability analysis when the business is simple and straightforward. While the Monthly Projection provides monthly detail and is most powerfully used when you need a bit more monitoring on a customer. Peak operating needs for the year can be estimated in a monthly plan.
Using the right commercial credit analysis tool for each customer situation is the first step in reducing risk in the credit decision process. Reach out today to learn more about how these analysis tools might aid in your commercial credit underwriting.
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Pauline Van Nurden is currently the Associate Director for the FINPACK Team. She has been with the team since 2017 as an Economist.
Prior to joining the FINPACK Team, she worked as a lender. This provides her valuable industry experience and knowledge in her work with FINPACK. Pauline holds a Master’s Degree in Agricultural Education and Bachelor’s Degree in Applied Economics, both from the University of Minnesota.