A Credit Refresher is a two-page document that focuses on a very specific credit or lending issue.

Business Development

• Getting Business explores whether credit knowledge is either useful or necessary for business development professionals, along with the role of credit administrators in the business development process

Cash Flow

• EBITDA and Cash Flow examines the similarities and differences between EBITDA and actual cash flow in concluding that lenders may be seriously misled in accepting EBITDA as a proxy for cash flow.
• Distributions and Withdrawals reviews the nature and purpose of distributions and withdrawals and suggests necessary adjustments to reported profit and cash flow in assessing debt service capability.
• Sales Growth and Borrowing Causes focuses on separating the cash impact of sales growth from the cash impact of poor balance sheet management or excessive owner distributions.
• Revisiting Cash Flow examines critical messages about debt service, borrowing causes, financing requirements, and financing sources embedded in the UCA cash flow statement.
• Global Cash Flow examines the increasingly common practice of combining business and guarantor cash flow to produce a resulting global cash flow in support of a business loan request.
• Cash Based Income Tax Returns assesses the information included in, and missing from, information-only income tax returns filed on a cash basis.
• A Cash Flow Snapshot explores the computation and use of simple operating cash flow statements that can be sketched out in a matter of minutes to provide surprising information about a prospect or borrower.

Commercial Real Estate

• Cap Rates and Lending Decisions reviews the components and function of the capitalization rate, examines its role in establishing the market value of an asset, and explores the implied expectations embedded in relatively marginal capitalization rates for income-producing properties.
• Cap Rates and Risk examines the relationship between cap rates and risk against a backdrop of alternative investment opportunities.
• The Income Capitalization Approach examines possible pitfalls in routinely accepting estimates of market value based largely on application of this valuation approach.
• A Simple Stress Test emphasizes the primacy of property cash flow - net operating income - as the critical source of debt service, especially in a stagnating economy.

Credit Culture

• A Common Credit Culture? explores the necessary and sufficient conditions that lenders must establish and maintain in creating a common credit culture while concluding that a common credit culture itself is no guarantee of lending success.
• A High Performance Credit Culture? suggests the characteristics of a high performance credit culture and explores qualities within a common credit culture that lead to exceptional performance.

Debt Service

• Cash Flow and Debt Service explores the best indicator of cash flow available to service debt and examines the necessary components of an effective debt service covenant.
• Subordination and Risk examines the definition and application of subordination and its likely impact on borrower cash flow and debt service capability.
• Shareholder Loans and Cash Flow examines the impact of shareholder loans on borrower cash flow and associated debt service capabilities.
• Guarantors and Personal Cash Flow addresses the benefits and limitations of the personal cash flow statement in assessing the value of a personal guaranty while focusing attention on the value of current personal financial statement information.
• Financial Covenants and Risk briefly examines the characteristics of effective financial covenants as well as explores two such covenants designed to monitor profitability and cash flow.
• Estimating Debt Capacity explores the process and computations in estimating the amount of interest-bearing debt a borrower can support from operating profit and subsequent cash flow.

Derivatives

• Interest Rate Swaps introduces several broad derivative categories while focusing on a specific derivative – interest rate swaps – in the process of examining the benefits and limitations that may arise in using this financial instrument.
• Forwards and Futures reviews the application of widely used forwards and futures contracts to lock in revenue or supply costs, along with the cash flow and accounting impact of completed transactions and their implications for key performance ratios.

Financial Analysis

• Loan Structure and Bad Deals reviews the critical considerations that should properly drive and determine loan structure and examines the impact on risk in their absence.
• Projections and Credit Decisions explores the benefits and limitations of financial projections in the credit decision process while cautioning against accepting any projection assumption that exceeds historical performance.
• Management and the Numbers reviews the management essentials that must be in place and working effectively for a borrower to perform successfully in its competitive environment.
• Information Overload addresses the issue of sorting through computer output to pinpoint the critical financial risk indicators that provide the most consistent and unambiguous signals about a borrower's risk profile.
• Information Oversight addresses the issue of sorting through computer output to pinpoint the critical financial risk indicators that provide the most consistent and unambiguous signals about a borrower's risk profile - or finding that some of those critical financial risk indicators are missing.
• Credit Scoring and Risk examines specific statistical considerations and practical issues that may pose limitations to the expanding use of credit scoring for business loans.
• Working Capital and Risk explores the messages about a borrower's cash flow and financial performance implied in working capital levels and changes.
• Big Companies and Small Companies explores whether big companies are truly more difficult to assess than small companies.
• Distributions and Income Taxes examines the impact of distributions and shareholder loans on both personal and business income tax obligations.
• Accounting Profit and Business Profit explores the possible differences between the two and suggests that one can be highly misleading in providing signals about borrower performance.
• Business Income Tax Returns examines the breadth, detail, and value of information in business income tax returns and their usefulness to the credit decision process.
• The Magic of Rate Cuts reviews the apparent status of the U.S. economy and examines the likely outcomes of various monetary and fiscal policy options in the face of an economic slowdown. It concludes with a very brief set of commentsabout identifying portfolio soft spots.
• EBITDA - the Last Word? examines the role of EBITDA in assessing both income producing properties and commercial businesses. In one instance, it appears that EBITDA and cash flow may be identical. But in another instance, we conclude that EBITDA may be only a starting point in computing cash flow.

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