How do you use the information you need to make a lending decision?

IN: Commercial Mortgages FAQs

We ask all potential borrowers for information about their financial status before making a commitment to lend.

Primarily from a financial perspective, we need to be satisfied that they will be able to make the payments on time and that the loan will be repaid as agreed. At all times we look at the total amount being borrowed from us if the borrower has existing loans with us.

There are several items of financial information that a business produces each year, which are collectively referred to as Financial Statements. Financial Statements: Company law requires a company to provide a true and fair set of accounts. There are financial reporting standards that have to be complied with. A listed company's annual financial statement will usually contain:

* Chairman's Report

* Directors' Report

* Profit and Loss Account

* Statement of Gains and Losses

* Balance Sheet

* Cash Flow Statement

* Auditor's Report & Notes to the accounts

The size of the business will dictate what kind of financial statements are produced.

Management Accounts: these are up-to-date figures produced by the business and are very useful in providing current information on how the business is performing on a month-by-month basis.

Cash Flow Forecast: we may ask you to provide a forecast showing how you expect your cash to move in and out of the business. This gives us an important indicator of the business's liquidity.

Profit and Loss Accounts: illustrate how the company has traded over a stated period and help us see how sustainable the business is. A three-year view enables us to make a judgement on the future prospects of the business.

Balance Sheet: this summarises a company's assets, liabilities and shareholders' equity at a specific time. These three balance sheet segments show us what the company owns and owes, as well as the amount invested by the shareholders. In many cases, the Balance Sheet can show us how strong a business is and whether a lender or the shareholders have most at risk.

Bank Statements: loan repayments are met from cashflow not profits; seeing your latest bank statements helps us to assess whether your business is generating enough money to repay the loan. It also helps us to see how you conduct your account. We would not expect to see bounced cheques or returned direct debits for example, but appreciate that sometimes this happens and would require a good explanation for such occurrences.

Statement of Assets & Liabilities: provides a snapshot of an applicant's current Assets & Liabilities and indicates their current Net Worth. This enables us to make a judgement on a potential borrower's financial strength outside the context of their business.

Business Plan: we appreciate that you may not have a current business plan available; however, such a plan helps us understand your business goals, your strategy for reaching them, the reasons why you believe they are attainable, and the steps you envisage for reaching them.

It may also include useful background information about your organization and team. This information helps us make a judgment on the future prospects of the business.

Tax Return: where financial statements are not available, tax returns can help provide an indication of earnings.



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