The credit skills of Board Members generally vary greatly, depending on their backgrounds and professional experiences. The objective of this Learning Path is to provide Board Members, with little or no knowledge of the commercial business or commercial real estate credit assessment process, with sufficient information to identify the key credit issues that must be adequately addressed in any loan request that comes to the Board for review or acknowledgement.
The Learning Path consist of background reading in the form of very brief Credit Refreshers that address key credit issues in commercial business and commercial real estate credit assessment. Most Credit Refreshers are no more than two pages. Therefore, the time demands are marginal in working through five commercial business Credit Refreshers and the five commercial real estate Credit Refreshers in Steps 1 and 2 in the Learning Path. The Credit Refreshers serve to prepare participants for the issues addressed in the Webinars in Steps 3 and 4.
There are two commercial business Webinars in Step 3 of the Learning Path.
- The Five Cs of Credit provides an overview of the generic credit assessment fields in a commercial business transaction that apply, as well, to a commercial real estate transaction.
- Pitfalls of Partial Analysis, which is appropriate for only those Board Members with a great interest in cash flow analysis, examines the differences between the use of cash flow proxies and the Uniform Credit Analysis (UCA) cash flow statement in identifying a) borrowing causes, b) the cash sources of debt service, c) the financial requirement, and d) the courses sources to meet the financial requirement - all essential issues in the credit assessment process.
There are two commercial real estate business Webinars in Step 4 of the Learning Path.
- Commercial Real Estate provides an overview of the interaction of rental revenues, vacancy rates, operating expenses, and income capitalization rates in establishing an income property's net operating income (NOI) and estimated market value. It also reviews common stress tests that identify how vulnerable a property is to adverse economic events in its market place.
- Global Cash Flow examines the underwriting concept of combining property and guarantor cash flow as a means for estimating cash available to service interest-bearing debt on the property.