Structuring Commercial Loans I
RMA’s Structuring Commercial Loans I course has been designed to teach commercial lenders the fundamental principles of how to structure a commercial or corporate loan. The right structure ensures the best chance of repayment from cash flow or from the liquidation of assets, a secondary and alternative source of repayment. The program consists of the following aspects of structuring commercial loans: examining the purpose, or cause, of loans, the sources of repayment and the role of capital structure in structuring loans; reviewing the role of loan covenants in a loan agreement; analyzing and structuring seasonal loans; analyzing and structuring permanent working capital loans; and analyzing and structuring term loans.
Who Will Benefit?
This course is designed for individuals who either lend money or supervise others in the commercial lending function.
Upon completion of this course, participants will be able to:
- Explain the four keys to loan structuring: 1) the bank’s goals, 2) the customer’s goals, 3) sources of repayment and competition for them, 4) the loan elements lenders choose from to respond appropriately to the first three keys. Explain how loan structure preserves Updated January 26, 2017, 2 repayment sources for the bank’s loan while meeting the customer’s need for access to other sources of capital.
- Explain the purpose and objectives of loan covenants and identify specific examples of covenants that meet those objectives.
- Identify and describe seasonal borrowing needs, profile seasonal repayment sources and their related risks, and formulate a loan structure, including consideration of collateral support to minimize those risks.
- Identify and describe permanent working capital borrowing needs, profile repayment sources and their related risks, and formulate a loan structure, including consideration of collateral support to minimize those risks.
- Identify and describe long-term borrowing needs, profile repayment sources and their related risks, and formulate a loan structure, including consideration of collateral and third-party support to minimize those risks.
The following cases are included in Structuring Commercial Loans I:
- Earl’s Candy Corp. is a local manufacturer of milk chocolate candy. It is a family owned business established in 1987 and currently generates $5,150,00 in sales. The business is very seasonal and needs financial support during the peak seasons. It is also in the process of purchasing a major piece of equipment to replace aging equipment as well as to expand production, which is near capacity. Their largest customer wants to sell more of Earl’s candy in its stores. The participants are asked evaluate the current situation and to determine the type of loans and structure of each loan that meets Earl’s needs and financial ability to service.
- Payne Equipment LLC is a closely held regional company that manufactures tree trimming implements. Payne has been in business for 7 years and has sales of $10,800,000. They are in the process of expanding their product line; seeking to purchase the building that they currently lease (funding offered by a life insurance company); adding new equipment to support the product line enhancements and support for seasonal and permanent working capital. The participants are asked to evaluate Payne’s financial needs and financial capability. Then they are asked to determine the amount, type, structure and conditions of the credits that meet Payne’s needs and the lenders criteria for safe and sound credit.