BankerCollege

Small business lenders often rely on tax returns when analyzing a borrower. Tax returns can provide significant information to assess the small business borrower’s credit worthiness and repayment capacity if the lender knows what information to request and analyze. The schedules such as Schedules K, K-1, M-1 and M-2 can be confusing. Further complicating the analysis of tax returns of borrowers organized as S Corporations and LLCs; many items of income and expense flow through to the shareholders, partners and members personal tax return.

One of the more challenging aspects of lending is analyzing personal financial statements and tax returns. Assessing the borrower’s ability to convert assets to cash to pay short-term debt or honor a guaranty often requires significant adjustments to the borrower’s reported net worth. Adjusted gross income on Form 1040 bears no relationship at all to cash available to pay personal living expenses and debt service. To determine cash available, the lender must construct a personal cash flow using information contained in the personal financial statement and schedules of the tax return. Lenders recognize that the business and personal financial affairs of small business borrowers are closely intertwined necessitating the integration of business and personal cash flow to determine global cash flow.

After completing this 2-part online loan webinar, participants will be able to:

• Compare a borrower prepared business financial statement and tax return
• Interpret Forms 1120, 1120 S and 1065 including supporting schedules e.g. K-1
• Determine the liquidity, solvency and marketability of a borrower’s personal net worth
• Analyze a personal tax return and supporting schedules including partnership, S Corporation, and LLC K-1s
• Utilize a Loan Screening Worksheet containing four key financial ratios
• Integrate business and personal cash flow to construct global cash flow
• Assess the adequacy and volatility of cash flows and describe the impact on loan structure including term, collateral advance rates, coverage ratios and financial leverage
• Apply the concepts in one case study
  
  

Who Should Attend?

• Credit Analysts
• Commercial and Small Business Lenders
• Branch Managers
• Private Bankers
• Loan Review Personnel