The elements your loan presentation needs to get approved
- A loan presentation is more than numbers. It’s a structured summary that tells a clear story and supports informed credit decisions.
- The 5 Cs of credit — character, capacity, capital, collateral and conditions — are essential for assessing risk and repayment potential.
- Effective presentations meet four objectives: explain the borrower and request, provide background, analyze risk and justify the decision.
A loan presentation is one of the most critical documents not just in a credit file, but in the entire credit process.
A well-written, comprehensive loan presentation contains many details to assist the reader in understanding the proposed transaction. An effective presentation should tell a story and paint a picture for the reader; it’s one part science and one part art.
Here’s an overview of how you can create stronger loan presentations:
What is a loan presentation?
A loan presentation is a structured summary of a borrower’s financial position, business operations and creditworthiness prepared for lenders or credit committees. It typically includes key details such as the purpose of the loan, repayment capacity, collateral and risk assessment.
The loan presentation should accomplish four primary objectives:
- Provide the reader with a reasonable understanding of the borrower and the subject request.
- Provide background information and explain the need for financing.
- Describe the risk in the transaction and creditworthiness of the borrower.
- Support the rationale for the credit decision and loan grade.
What are the 5 Cs of a credit presentation?
The five Cs of credit are a framework you can use to evaluate a borrower’s creditworthiness and create an effective loan presentation. Each “C” addresses a different dimension of risk and repayment potential:
- Character: Assesses the borrower’s reputation, integrity and track record for meeting obligations. Lenders look for reliability and transparency in financial dealings.
- Capacity: Evaluates the borrower’s ability to repay the loan, typically through cash flow analysis and debt service coverage ratios.
- Capital: Examines the borrower’s financial strength, including net worth and equity invested in the business, which signals commitment and resilience.
- Collateral: Considers the assets pledged to secure the loan, providing a secondary source of repayment and reducing lender risk.
- Conditions: Reviews external factors such as industry trends, economic climate and regulatory environment which could impact repayment ability.
Together, these elements help lenders better understand the level of risk inherent in the credit and make informed credit decisions.
Four objectives of an effective loan presentation
Having a high-quality loan presentation product is a vital step towards well-informed approval decisions, effective credit monitoring and a smoother third-party review. In addition to the five C’s of credit, you can help ensure that your presentation is effective by meeting these four objectives:
1. Borrower and subject
Don’t assume your reader is familiar with the borrower or the transaction. Instead, start your presentation with a straightforward overview of the basics.
This section should be matter-of-fact and include the following:
- Borrower
- Guarantors (both personal and corporate)
- Purpose and terms of the request
- Proposed loan structure
- Primary and secondary sources of repayment
- Loan officer
- A recap of the current relationship with the lender, including both loans and deposits
While the subject request may be transactional in nature, it is important to include the full relationship with the lender when entertaining a new request. A borrower may have multiple loans with the lender, and while each loan transaction should stand on its own, in most instances, the individual loans are not siloed.
2. Background information
Next, the presentation should provide the reader with pertinent background information, current events and describe the need for the subject financing.
Presentations are often written with the assumption that the reader is the internal credit committee, who is already familiar with the borrower. They may omit critical background and current event information necessary to understand the borrower and the need for the subject financing.
Effectively providing background information requires balance. It isn’t necessary to include a recap of everything that has happened during the past 20 years. However, there should be sufficient background information so the reader can understand the borrower’s business and evolution.
This section may also include commentary on the guarantors and their role with the borrower. It is helpful to include a sources and uses table to provide a recap of project financing.
3. Risk analysis
Risk analysis and mitigation are the meatier parts of a loan presentation. When covering risk analysis, it is important to include the following:
Financial statements
The first step is spreading the financial statements. Some lenders spread the statements right in the loan presentation, while others include attachments at the end with a recap in the body of the presentation. However, in both cases, there should be more than just simple spreads.
The balance sheet analysis should include ratio analysis and commentary on items such as liquidity, leverage and trends. Likewise, the income statement needs to be analyzed for trends such as revenue growth, margins and profitability, and should also note any adjustments for items such as one-time expenses.
Noteworthy items should be highlighted and explained if possible. This may require going back to the borrower for explanations.
This step is frequently overlooked but necessary. Without it, the reader is forced to make assumptions, and inaccurate assumptions can lead to inaccurate results and poor approval decisions.
Cashflow
Once appropriate spreading and analysis are complete, cash flow can be analyzed.
If the borrower has outside debts, a debt schedule should be included. This helps ensure all required debt payments are properly included so that debt service ability can be calculated.
Debt service ability is often the biggest driver in determining the borrower’s ability to repay debt. After all, repayment of the loan per the terms of the contract is ultimately what lenders want to see.
Collateral analysis
The collateral analysis should include a collateral table with the following:
- A description of the collateral
- The value of the collateral
- The source of the valuation
- Appropriate advance rate and indication of any primary liens impacting the collateral position of the lender
This should only include perfected collateral while including all collateral pledged in the table. Additional commentary may be appropriate to describe specific assets and lien positions.
Level of risk
An objective grading matrix is a useful tool to measure the level of risk based on the lender’s own criteria.
The matrix should primarily use objective criteria, such as debt service coverage, collateral coverage, liquidity and leverage. In addition, certain subjective criteria, including collateral type, guarantor strength, economic considerations, and strength of management, may be considered as well.
Different matrices may be used for different loan types, as certain factors are more relevant in certain loan types than others.
Monitoring tools such as covenants and financial reporting requirements should also be included in this section.
Loan covenants — for example, borrowing bases, minimum debt service coverage, maximum leverage levels and minimum liquidity levels — communicate the performance expectations the lender has of the borrower. As such, covenants should be clearly defined and communicated to the borrower.
Covenant violations create early warnings of potential issues with a borrower. Financial reporting by the borrower and guarantors allows the lender to monitor performance and any significant changes (good or bad) in the financial condition and ability of the providers. It is also important to note any underwriting or policy exceptions in this section.
4. Rationale
Finally, the loan presentation should provide a rationale for the approval and loan grade.
A well-written and well-developed loan presentation should lead the reader to the same conclusions as the lender. There should be sufficient depth and detail to support both the conclusion to approve the request and the risk rating conclusion based on the lender’s risk parameters. Evidence of approval should be contained within the presentation or attached to it.
Consistency across the organization is essential when analyzing and grading credits.
While a centralized approach to underwriting and analysis generally provides a more consistent product, a decentralized approach can work as well. However, a decentralized approach requires additional controls and oversight to obtain the same consistency in the final product.
Business loan presentation tips
A strong business loan presentation not only conveys financial data but also accurately reflects the borrower’s ability to manage risk and repay. Here are some practical tips:
- Start with a clear purpose: Define what the loan request is for and potential benefits for the business. Lenders want to see a direct link between the loan and business growth or stability.
- Highlight financial strength: Present accurate, up-to-date financial statements and emphasize key metrics such as cash flow, profitability, and debt service coverage.
- Address risks proactively: Identify potential challenges and outline mitigation strategies. This demonstrates foresight and strengthens credibility.
- Show commitment: Include details on the owner’s equity, personal guarantees or other forms of investment to signal confidence in the business.
- Keep it organized and concise: Use a logical structure with clear headings, charts and summaries. Avoid unnecessary jargon and focus on what matters most to decision-makers.
- Tailor to the audience: Your lender’s presentation should show that you understand the lender’s priorities and are aligned with their risk appetite and industry focus.
How Wipfli can help
Wipfli understands the challenges financial institutions face with underwriting risk. Our team includes experienced lending professionals who are ready to guide you through best practices and strategies to help you be confident in your risk management. Contact our financial services team to talk about how our credit risk management support can help strengthen your institution.
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