Certified Commercial Lending Professional

How a commercial bank works

• Assets and liabilities of a commercial bank
• How the interest rate on a loan is set: cost of funds, operating cost, risk premium and margin

Credit facilities

• Term loans and lines of credit, and when each is used
• Committed and uncommitted facilities; revolving and non-revolving
• Limit, outstanding and availability

Repayment structures

• Straight amortisation, interest-only, balloon and bullet
• Revolving, seasonal and step-up schedules
• How the choice of structure affects the borrower's ability to repay

Borrowing base

• Eligible collateral and advance rates
• Clean-up period

Collateral and lien creation

• What taking security means
• Creating and perfecting a lien
• Risks of an unperfected lien

Loan life cycle

• Enquiry → origination → credit approval → documentation → booking → servicing → maturity or workout
• Roles: relationship manager, credit officer, maker and checker

Equipment finance

• Financing machinery, vehicles and plant
• Residual value and useful life
• Loan versus lease
• Types of leasing: finance lease, operating lease, sale and leaseback

Floor plan and inventory lending

• Financing dealer and distributor stock
• Trust receipts
• Curtailment schedules
• Stock audits

Receivables finance and factoring

• Financing against unpaid invoices
• Advance rate, dilution and concentration
• Recourse and non-recourse factoring

Trade finance

• Bank guarantees
• Letters of credit: sight, usance, confirmed, standby
• LC life cycle: issuance, amendment, document presentation, settlement
• SWIFT messages used in trade finance

CRE loan types

• Acquisition, bridge and permanent loans
• Owner-occupied and investment property
• Recourse and non-recourse lending

Sizing a property loan

• Net operating income (NOI)
• Debt service coverage ratio (DSCR)
• Loan-to-value (LTV) and loan-to-cost (LTC)
• Debt yield

Construction finance

• Project budget and draw schedule
• Disbursement against completed work
• Inspection before each draw
• Interest reserve and retention
• Conversion to a permanent loan

Ongoing monitoring

• Rent roll review
• Reserves and escrow accounts
• Annual DSCR re-certification

Loan syndication

• Why banks syndicate
• Roles: arranger, agent bank, participant lenders
• Club deals and participations
• Agent bank duties: notices, rate setting, payment distribution
• Commitment allocation and pro-rata sharing
• Payment waterfall
• Secondary loan trading

Securitisation

• How securitisation works: pooling loans and selling the cash flows
• Special purpose vehicle (SPV)
• Tranches and credit enhancement
• CMBS — commercial mortgage-backed securities
• CDO — collateralised debt obligations

Financial analysis

• Financial spreading of three years of statements
• Normalisation: adjusting for one-off and non-recurring items
• Key ratios: DSCR, leverage, fixed charge coverage, current ratio, LTV
• Cash flow analysis

Risk assessment

• Risk rating and risk-based pricing
• Stress testing
• Expected credit loss and provisioning

Collateral valuation

• Primary and secondary sources of repayment
• Valuation approaches: market, income and cost
• Market value, orderly liquidation value and forced sale value
• Haircuts and lending value by collateral type
• Independent appraisal and revaluation frequency

Credit approval

• The credit approval memo (CAM)

• Drawdowns and repayments, with accounting entries
• Interest accrual, day-count conventions and fees
• Revolving line mechanics and the annual clean-up test
• Covenant monitoring and handling a breach
• Construction draw management
• Amendments, renewals, extensions and restructuring
• Early warning signals

Basel and capital

• Purpose of capital requirements
• Risk-weighted assets
• Capital, liquidity and leverage ratios

KYC and AML

• Customer due diligence and beneficial ownership
• Enhanced due diligence
• AML red flags in commercial lending
• Sanctions screening

Credit controls

• Credit policy and concentration limits
• Audit trail and maker/checker control

Payment systems

• Fedwire, CHIPS and ACH
• SWIFT payment messages
• Nostro and vostro accounts
• Cut-off times and value dates