How to Project Cash Flow to Evaluate Borrower’s Ability to Repay Long-term Loans
A frequent speaker, instructor, advisor, and writer on credit risk and commercial banking topics and issues, Dev is principal of Devon Risk Advisory Group and engages in consulting, speaking, and training on a wide range of risk, credit, and lending topics. As former SVP and senior credit policy officer at SunTrust Bank, Atlanta, he was responsible for developing, implementing, and administering credit policies for SunTrust's wholesale lines of business--commercial, commercial real estate, corporate investment banking, capital markets, business banking, and private wealth management. He also spent three years as managing director and credit approver in SunTrust's Florida commercial lending and corporate investment banking areas, respectively. Prior to SunTrust, Dev was chief credit officer for Barnett Bank's Palm Beach market. Besides stints at other banks in Florida, Kansas City, and Ohio, Dev's experiences outside of banking include CFO of a Honolulu construction company, combat engineer officer in the U.S. Army, and college economics instructor in Hawaii, Missouri, and Florida. A graduate of Ohio State University and the ABA Stonier Graduate School of Banking, he earned his M.B.A. from the University of Hawaii.
Dev serves as an instructor in RMA's Florida Commercial Lending School, the Stonier Graduate School of Banking, the Southwestern Graduate School of Banking, and the American Bankers Association's (ABA) Commercial Lending. His school, conference, and workshop audiences have included participants drawn from the ABA, RMA, OCC, Federal Reserve, FDIC, FFIEC, SBA, the Institute of Management Accountants (IMA), and the AICPA.
Dev has written about credit risk management, financial analysis, and related subjects for the ABA's Commercial Insights, the Risk Management Association's RMA Journal, and other business professional journals. He is the author of Analyzing Construction Contractors and its related RMA workshop. A past national chair of RMA and former Florida Chapter president, Dev serves as a member of the RMA Journal's advisory board, and an ex-officio board member of the Florida and Atlanta RMA chapters. He also serves on the advisory board of the Atlanta Chapter of the Professional Risk Managers' International Association (PRMIA), and he has consulted on credit risk issues with banks in Morocco, Egypt, and Angola through the US State Department's Financial Service Volunteer Corps (FSVC).
One of the most basic analytical and underwriting tools a banker must have is the ability to determine whether a borrower can repay its loans based on the financial information available. Financial organizations extend credit to borrowers when the borrowers show the ability to repay the loans extended. Ideally, a request for a five-year loan should be supported by a 5-year cash flow projection. Learn key assumptions in a projection and how to assess validity, the value of a downside-most likely projection to stress test the assumptions.
- How revenue projection determines income statement and income statement determines balance sheet
- A critical role of working capital assets, capital expenditures, and retained earnings in supporting projection
- How to generate cash flow projection with the balance sheet and income statement
- How to estimate loan needed to realize financial projections
- How to underwrite loan needed to fit lending organization’s policies
- How to support loan with appropriate collateral and guarantees
- A critical role of revenues in projecting financial statements and cash flow
- Projection of income statement, balance sheet, and cash flow to calculate loan needed to support projection and ability of the borrower to repay the loan
- Evaluation of underlying assumptions including the feasibility of revenue growth rate, profitability, productivity, efficiency, earning retention, and leverage
- Calculation of loan amount needed to support financial projection and borrower’s repayment ability
- Analysis of asset collateral base available to support repayment
Course Level - Basic/Fundamental