January 2012 Archives

Brian Hamilton, President of Sageworks Loan Analysis Software, will be addressing FDIC examiners in a few days about global cash flow. He asked for my thoughts about lender/analyst's typical questions, trickiest questions and what examiners should be asking about global cash flow in your financial institution.

So here is part one...a typical question on global cash flow.

Why do I need global cash flow if I can qualify the business borrower with the business information alone...or the owner with just their personal cash flow from the business?

Some lenders still think it is okay to qualify a business borrower with just the business information and that the personal information is not needed if the business looks good.

Or if they agree they need the personal as well to look at a guarantor analysis, they think it is okay to skip the additional businesses owned by one or more of the guarantors as soon as they get 'enough' cash flow.

They may be applying the idea that you can do a consumer loan based on just the 'borrower' and leave out the 'co-borrower' if you don't need the additional cash flow to qualify.

Those lender/analysts sometimes fail to see that the risk of loss is as or more important to pulling everything together for global cash flow as is the possibility they can find more income.

The answer...if a source of cash flow is significant to the borrower's overall ability to pay or if there is a significant risk of loss, it is important to include it in the analysis. Whether you do that through a global cash flow process or piecemeal, you have to do it.