MANAGING RLFMANAGING RLF
****RISKRISK****
WHAT IS RISK?WHAT IS RISK?
HOW IS RISK HOW IS RISK IDENTIFIED?IDENTIFIED?
““IF IT DOESN’T KILL IF IT DOESN’T KILL YOU, IT MAKES YOU YOU, IT MAKES YOU
STRONGER”STRONGER”
HOW IS RISK HOW IS RISK IDENTIFIED?IDENTIFIED?
1.OBSERVATION2.EXPERIENCE
3 TYPES OF RLF RISK3 TYPES OF RLF RISK
1.UNDERWRITING RISKS2.SERVICING RISKS3.FUNDING RISKS
UNDERWRITING RISKS!
• KEY AREAS OF REVIEW IN THE KEY AREAS OF REVIEW IN THE UNDERWRITING PROCESSUNDERWRITING PROCESS
• INFORMATION VITAL TO SOUND INFORMATION VITAL TO SOUND UNDERWRITINGUNDERWRITING
KEY AREAS OF REVIEWKEY AREAS OF REVIEW
1. CASHFLOW2. MANAGEMENT3. CHARACTER
CASHFLOWCASHFLOW•Cash pays the bills not Profits•Look a little Deeper•If it is Good can they do it
Again?•If it is Bad can they correct it?
CASH IF KING!CASH IF KING!
MANAGEMENTMANAGEMENT
•How Do You Know If Someone is a Good Manager?
•What are the Signs of a Good Manager?
The Two Most Common The Two Most Common Reasons for Business Reasons for Business
FailureFailure
•LACK OF CASHFLOWLACK OF CASHFLOW
•POOR MANAGEMENTPOOR MANAGEMENT
CHARACTERCHARACTER
•Most Difficult to Quantify!
•Importance of Honoring Debts
•Providing What you Need
INFORMATION VITAL TO INFORMATION VITAL TO SOUND UNDERWRITINGSOUND UNDERWRITING
•Credible Financial Statements•Credit History•Try to Get Your Arms Around Character
Servicing Risk
1.Key Areas of Review
2.Red Flags
Key Areas of Review
•Performance of the Business•Competition•Trying to Stay Ahead of the
Curve
Red FlagsRed Flags•Late payments•Poor record keeping•Failure to provide financials•Significant increase in sales•Increases in current liabilities
Red FlagsRed Flags•Stale inventory•Significant changes in
Balance sheet composition•Decreasing sales•Loss of major customers –
concentration
Funding RisksFunding Risks
•Compliance with Funding Agencies
•Inadequate Program Income•Loan Losses
Compliance with Funding Compliance with Funding AgenciesAgencies
•Understand the REGS•When in Doubt – Get in Touch•Keep Them in the Loop
Inadequate Program Inadequate Program IncomeIncome
•Do You Generate enough Income to Keep it Going?
•Can you Sustain Losses?
Loan LossesLoan Losses
•Poor Documentation•Loan Servicing
Poor DocumentationPoor Documentation
•If You are Unsure – Find a Partner
•Talk To Your Helpful Banker•Shame an Attorney in to
Helping
Loan ServicingLoan Servicing
•Find a Partner
•Outsource for Better Effectiveness
WHY DO WE PUT WHY DO WE PUT OURSELVES THROUGH OURSELVES THROUGH
THIS ???THIS ???
YOUR LOCAL YOUR LOCAL ECONOMY ECONOMY
BENEFITS FROM BENEFITS FROM RLF’SRLF’S
YOUR LOCAL YOUR LOCAL BUSINESSES NEED BUSINESSES NEED
RLF’SRLF’S
