• You are writing as commercial bankers at the bank in the case that contemplates making the new loan. For example, in Clarkson Lumber, you work for Northrup National Bank.
• You are writing at the time of the case; as such, when appropriate, use the present tense (“The company manufactures …”, “the CEO believes…”)
Ownership and Management (two paragraphs)
Provide history of company, private vs. public ownership, key owners and management; analyze quality & depth of management.
Financial Summary (two pages)
First, analyze the historical performance of the customer or prospect, highlighting trends and, if available, industry comps. Discuss operating performance, liquidity, working capital management (as seen through the lens of activity ratios), leverage and coverage.
Then, analyze projections of the income statement, balance sheets, and cash flow. Include a ”base case” that is less optimistic than management’s. (Identify what you changed and why.) Remember to set your covenants to the base case.
Repayment Analysis and Risks (half-page)
Briefly discuss the primary and secondary sources of repayment. Then present two likely factors that can hinder the customer’s ability to repay the loan on the proposed terms. After naming each risk factor, discuss the mitigants such that the approver will feel you really understand those risks.
Collateral/Fallback; Guarantors
In a paragraph, describe collateral, advance rates, and rationale for the recommendations. If applicable, discuss in a second paragraph the level of reliance on guarantors and their financial strength.
Summary and Recommendation
In a crisp paragraph, pull together the reasons to make this loan. Assume this is the first section of the report that an executive would turn to (because it often it!).
Attachments
Financial statements, including projections; any other due diligence items.