POLLUTION PREVENTION FINANCING
THE BANKING OUTREACH PROJECT
By
Catherine M. Pugin
through a National Network for
Environmental Management Studies fellowship
For
U.S. Environmental Protection Agency
Environmental Services Division for Regionjlll
Philadelphia, Pennsylvania
November 1993
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CONTENTS
I. Introduction.... , 1
II. Background............. , ! .2
A. The Maryland Outreach Projects .-. .; 2
, B. The Approach...... .... 3
III. Impact of Environmental Regulations on Lending Policies 6
A. What Risks do Banks Face?. .........'.. ....6
B. How do Banks Protect Themselves Against These Risks? , 7
IV. Barriers to Pollution Prevention Facing Small Businesses........... 9
V. Robert Morris Associates.... ..9
VI. Conclusion and Recommendations... , , 11
Appendix A 15
* ' i '
Appendix B ; , 16
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I. Introduction i
i . '
A primary goal of bankers is to assess the risks of lending, minimize
these risks where possible and receive an adequate return forj these risks. A
primary goal of pollution prevention is to minimize risk to the environment by
preventing pollution before it is actually created. Through thejpurchase of new
equipment or material or a change in process, a company can decrease the
amount of waste it creates, and thereby avoid the potential of Vnore expensive
clean-up costs and liability problems in the future. Pollution prevention can
make good business sense since a company can not only eliminate the use of
certain raw materials, but it can also benefit from lower costs of compliance and
reduced waste disposal costs. Pollution prevention implementation also
equates to less risk to the environment.
From a banker's perspective, the "environmental risk" of lending to a
certain company, however, is not lessened by,, or even primarily related to the
fact that the proceeds from the loan may finance pollution prevention. Instead, it
has been the liability associated with the passage of environmental regulations
such as Super-fund which has created environmental risk for 1:he banking and
business community, these regulations have affected the waty banks lend ~ or
do not lend --to manufacturing companies and other companies which could
contaminate the environment. !
The main purpose of this paper is to provide some insight into
how environmental regulations have shaped internal bank policies
and why small and mid-sized businesses may have difficulty
obtaining credit for projects like pollution prevention! The findings
and recommendations can be used as a basis for carrying out two pilot projects
in Maryland. The objectives of these two projects are briefly restated in the
second section. . !
The second section also describes the approach taken in this particular
research project which included a series of informal meetings) with members of
the banking community in the Philadelphia area conducted during August 1993.
The third section details the findings of these meetings. Interestingly, the
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2
lenders see it as a necessary role of the federal and state environmental
agencies to better quantify environmental risk. Some of the barriers to lending
seem to be a direct result of what the banks perceive to be the current open-
endedness and uncertainties of environmental risk.
Since these lenders have a good knowledge of how small businesses
operate, another objective of this project was to discuss what actions
may be necessary to encourage pollution prevention among the
small business community. These findings are summarized in the fourth
section.
A final purpose of this project was to determine the best way
to reach out to the banking sector in general to inform them of the
economic and environmental benefits of pollution prevention. The
fifth section gives an overview of Robert Morris Associates, a national bank
association that could be a useful partner in a banking outreach initiative.
The sixth section draws conclusions and makes recommendations for
future action.
Background
JThe Maryland Outreach Projects
EPA, Region III is working with the Maryland Department of the
Environment (MDE) and the Pollution Prevention Division (PPD) in EPA,
Headquarters in the initial stages of a Credit Assistance Pilot Project to test the
feasibility and desirability of adding a financial counseling component to a small
business technical assistance program. One of the first tasks of the project will
be to identify those businesses that have had difficulty obtaining credit for
pollution prevention projects. The project will also include outreach to the
financial community in Maryland to educate them on the economic benefits of
pollution prevention and encourage them to invest in these projects.
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This pilot project accompanies the development of a Technical
Assistance Program (TAP) for small businesses in Maryland, vihich is being
funded by the Office of Atmospheric and Indoor Air Programs ahd the Office of
Cooperative Environmental Management at Headquarters. The TAP will offer
multi-media assistance through the Technology Extension Service housed at
the University of Maryland. MDE will also be working with the Department of
Economic and Employment Development and the Small Business
Development Center to identify small businesses that need assistance for
pollution prevention projects.
Following the completion of these two outreach programs, Maryland
should be able to offer a range of pollution prevention assistance services to
small businesses.
B. - The
This informal outreach initiative to the banking community in the greater
Philadelphia area was undertaken as part of a summer internsriip research
project under the guidance of Lorraine Urbiet, Pollution Prevention Coordinator
in Region III. During the month of August 1993, we conducted pi Dilution
prevention presentations and informal meetings with lenders at three out of the
four largest banks in Pennsylvania and some of the mid-sized bknks in the
region. Asset size of the banks ranged from approximately $600 million to $29
billion.
Our audience was primarily banking officials who were responsible for
loans to small businesses. They were typically in the Community Banking or
Small Business Lending Unit of their particular bank. At a couple of the
meetings, lenders from the Corporate Banking (mid to larger sized companies)
and the Real Estate Lending Departments were also present. Tl^eir titles were
Assistant Vice President, Vice President or Senior Vice President
The meetings varied in style, from one-on-one discussions with a Small
Business Lender, to presentations to an entire Small Business Landing Group.
Although we- maintained a flexible format, we generally spoke first about
pollution prevention as a voluntary initiative and overviewed the Maryland Pilot
Projects. .
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We then overviewed alternative ways to analyzing pollution prevention
investments using a total cost accounting approach. With this type of
approach, a company not only considers the direct, costs of equipment or
material; but also incorporates the indirect costs, potential future liabilities and
potential less tangible benefits of pollution prevention into their budgeting
decisions. We also discussed whether or not lenders could potentially conceive
both educating companies about the cost savings of pollution prevention and
incorporating a total cost accounting approach into their financial analysis.
In order to see how environmental concerns have affected their
bank's lending practices, we posed such questions as:
Does your bank have an internal policy that takes environmental
concerns into consideration?
Does your bank require an environmental assessment (also called a
Phase I Environmental Site Assessment) prior to writing a new loan?
Are you restricted from lending to certain industries because of
environmental concerns?
Given the current regulatory environment, what are other barriers to
lending and how can they be overcome?
We were also interested in finding out, from a banker's perspective,
what barriers to pollution prevention face the small business
community and what initiatives were necessary to better inform small
businesses about pollution prevention possibilities. .
Finally, we asked bankers what publications or organizations they
relied on for information and/or training. Specifically, we asked if they
read publications and attended seminars given by Robert Morris Associates, a
professional banking organization which provides information and training for
personnel in commercial lending and related functions.
At the end of the meeting, each lender was given a folder containing the
following information:
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EPA brochure: EPA... Preserving our Future Today
A one page description: What is Pollution Prevention?
EPA Pollution Prevention Policy Statement, Carole M. Bipwner, EPA
Administrator, June 15, 1993.
Memorandum from F. Henry Habicht II, Deputy Administrator: EPA
Definition of Pollution Prevention, May 28, 1992.
Pollution Prevention Information Clearinghouse Distribution List dated
May 1993, which was amended to include additional publications
relating to the financial analysis of pollution prevention projects.
EPA pamphlet: Pollution Prevention & Recycling Ideas at Work, Office of
External Affairs, August 1992. EPA>903-K-92-002.
Toll-free number for EPA, Region III.
. Richard Siegel, "Making Dollars and Sense of Environmental
Regulations," Pollution Engineering, April 15, 1993, p. 1&
Martin A. Spitzes "Calculating the Benefits of Pollution Prevention,"
Pollution Engineering, September 1, 1992, pp. 33 -36.
Michael M. Stahl, "Pollution Prevention Through Enforcement," Pollution
Engineering, April 1, 1993, pp. 45-47.
EPA Design for the Environment Fact Sheet: Accounting and Insurance
Projects, Applications for Pollution Prevention in Financial Professions,
March 1993.
We also asked the lenders if they would be interested in (receiving their
own copy of the EPA publication, A Primer for Financial Analysis of Pollution
Prevention Projects or the Tellus Institute report, Alternative Approaches to the
Financial Evaluation of Pollution Prevention Investments. There was
substantially more interest in the Tellus Institute report, which provides detailed
i'
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company case studies and financial analyses of pollution prevention projects
using a total cost accounting approach. * ..
III. Impact of Environmental Regulations on Lending Policies
A. What Risks do Banks Face?
These meetings confirmed the fact that environmental concerns -- and in
particular, the potential for environmental lender liability - have had a dramatic
impact on banks''lending policies or operations. Environmental laws and
regulations have created certain risks for the banking industry, which relate
primarily to the costs of compliance for small businesses and the potential
liability for cleanup costs. The bank's main concern is that a business
could potentially contaminate the property which the bank holds as
collateral, which would affect the business's cash flow and
collateral (the primary and secondary sources of repayment of the loan). In
particular:
The costs of compliance or fees for cleanup that the small business must
pay can severely impact its cash flow and potentially put the company
out of business, thereby impairing the borrower's ability to repay the loan;
Property held as collateral which becomes contaminated loses its
value; and
If the bank forecloses on contaminated collateral, it may foe liable for
cleanup costs. . '
i In May 1992, EPA released a slightly condensed version of the original
Tellus Institute report entitled Total Cost Assessment: Accelerating Industrial
Pollution Prevention through Innovative Project Financial Analysis - With
Applications to the Pulp and Paper Industry, which is available through the
Pollution Prevention Information Clearinghouse.
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EPA's lender liability rule (April 1992) has offered only some comfort to
lenders regarding liability. The rule clarifies the actions that a bank can '
undertake and still not be liable for cleanup costs under Superfund and protects
secured lenders which do not participate in the management of a facility from
being liable for cleanup costs. The rule, however, does not protect the bank
against a loss in collateral value. x >,
Banks also remain concerned about the open-endedness of
liability, the uncertainty of future regulations, and stricter state and
local requirements. Lenders also cited the lack of environmental
standards, which makes it difficult to assess the potential environmental risks
of a project. A few of the lenders noted that it would be helpful fpr the EPA to
formulate standards for equipment or industry practices so that [lenders could
better assess the risks of lending to certain companies.
Although most lenders were interested in hearing about the total cost
accounting approach to pollution prevention investments and in considering the
indirect'benefits of these projects ~ such as decreased potential for liability and
compliance costs - they believed that the companies must; first initiate
this type of analysis. Since larger companies can usually realize more
tangible benefits and cost sayings from pollution prevention than smaller
companies, it may make sense to first encourage a total cost accounting
approach among these larger small and mid-sized businesses.!
B. How do Banks Protect Themselves Against these Risks?
In order to minimize the risks of loan defaults,.loss in collateral value and
liability for cleanup costs, many banks have developed internal environmental
guidelines. Virtually all banks require a Phase I Environmental Site
Assessment, or Phase I Audit, for loans over a certain dollar amount and, if
necessary, a Phase II Audit. These assessments verify whether, or not the
property or nearby site is contaminated and if fugitive emission^ are being
-= , |
released at or near the property. They do not verify that a company is in
compliance with regulations. The costs for a Phase I Audit, which typically
range between $2,500 and $5,000, are borne by the interested borrower and
may be prohibitive for certain small businesses.
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According to one of the lenders, the format for site assessments used to
vary tremendously, depending on the engineering or consulting firm which
provided the services. In 1992, the American Society of Testing Materials
(ASTM) developed standard practices for environmental site assessments: the
Phase I Environmental Site Assessment Process, a national standard
for a Phase I Audits; and a new, faster and cheaper standard called trie
Transaction Screen Process. It is important to note that, although these
standards have somewhat formalized the site assessment process, they are
voluntary - not mandatory -- guidelines.
Banks also minimize the potential risk of liability by requiring a
guarantee from the Small Business Administration (SBA). For instance,
one lender noted that loans to gas stations for tank conversions could only be
done with a SBA guarantee. Since a SBA guarantee reduces the probability
and size of loss to a lender, it is possible for a small business to borrow on
reasonable terms from a conventional lender which without governmental
backing might not extend the loan.
The SBA rarely extends direct loans and primarily guarantees loans
made by banks and other private lenders to small business clients.2 SBA
guaranteed loans generally do not exceed $750,000. The agency guarantees
up to 90 percent of the loan balance to the bank. Since the lender must pay a
guarantee fee of 2 percent to the SBA which may be passed on to the borrower,
these loans are typically more expensive than conventional, non-guaranteed
loans. Before obtaining a SBA guarantee for certain industries, lenders must
complete a SBA application arid environmental questionnaire.3 The SBA also
requires'supporting material which is similar to a bank's traditional credit
analysis.4
Additional information or assurance requirements can vary from bank to
bank. One of the larger banks requires its lenders to conduct a visual site
2 See Appendix A for an 2-page overview of the SBA loan programs and
their size standards for small businesses. ,
3 See Appendix A.
4 See Appendix B.
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assessment of the facility and fill out an internal environmental questionnaire.
At another bank, one of the small business lenders is currently the
"environmental expert" for his section of the bank and is responsible for
reviewing,any loan where environmental issues are of concern.! This bank
!
follows a detailed internal environmental guideline which he helped develop
few years ago. The bank may also require the companies to pay for a
"compliance audit" done by an outside consultant.
When asked whether they were restricted from lending to certain
industries because of internal policy guidelines, most lenders responded that
they were not. However, lenders at one of the larger banks noted that, as a
general rule, they do not lend to gas stations, oil refineries, dry gleaners and
certain chemical companies due to the risks of environmental contamination.
IV. Barriers to Pollution Prevention Facing Small Businesses
' '! -
Interestingly, many of the lenders commented that they found themselves
educating, or counseling, the small businesses about environmental
regulations. They cited instances when companies only becamle aware of
certain regulations or that they were in violation because they requested bank
financing and needed an environmental audit. . j
The lenders generally agreed that small businesses wish to remain
outside the regulatory loop and that it would be difficult for the EPA or the State
regulatory agencies to effectively target these companies. Instead, these
agencies should work with groups that deal directly with these businesses, such
as the Chamber of Commerce, industry trade associations, accounting firms
\ !''-
and insurance firms.
i '-
Another major barrier facing small businesses is their lack of time,
financial resources and knowledge of environmental regulatioris. Given these
constraints, most of the lenders felt strongly that it would be very difficult to
' ". ' | .-.'.'
convince small businesses of the merits of pollution prevention junless there
were tangible benefits or monetary incentives.
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Finally, as mentioned above, a company's conventional project analysis
techniques may bias investment decisions away from prevention-oriented
decisions. Most businesses justify that an investment is cost-effective by
considering only the direct costs of equipment or material. By using a total cost
accounting approach, a business can more effectively compare the viability of
pollution prevention investments to other projects..
V. Robert Morris Associates
Another goal of our meetings was to determine which banking
organizations the EPA and state agencies could work with to disseminate
pollution prevention information to the banking community. The lenders most
often cited Robert Morris Associates (RMA), a professional organization which is
reputed to be the premier banking trade group in commercial lending and
credit. The lenders also suggested contacting the American Banking
Association (ABA), which is primarily a lobbying organization and the National
Association of Government Guaranteed Lenders.
The national office of Robert Morris Associates is located in Philadelphia
with local chapters located throughout the country. According to RMA
publications, more than 3,000 banks, or approximately 80% of all banks
nationwide, are members; only the smaller banks are not as well represented.
RMA's membership extends to all fifty states, Puerto Rico, and Canada and
reaches more than 13,500 loan officers.
RMA provides information and training for personnel in commercial
lending and related functions. Its aim is to provide lenders with the
development of trends and techniques in the commercial lending area. All of
the lenders we spoke to were familiar with RMA's publications, and its monthly
newsletter and journal. They were aware that RMA held seminars on both
national and regional levels which some of the lenders attended on a regular
basis. The lenders were also familiar with RMA's commercial loan training
courses, although some of the banks preferred to use in-house training for new
loan officers.
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In August, we contacted RMA's national office and met with the Director
of the Research Division and the Director of the Chapters and Membership
Division. RMA is very interested in working with the EPA and suggested that, as
an initial step, we write an article for its monthly newsletter. RMA iplso
encouraged us to provide a speaker or speakers at its workshops! or seminars,
either through the national office or one of its local chapters.
VI. Conclusions and Recommendations
' . - j .
This informal outreach project shows the extent to which blanks have felt
it necessary to protect themselves against environmental risks. In some cases,
liability concerns and desires to minimize risk may deter a bank firom lending to
certain businesses altogether. In all cases, environmental regulations have
created additional paperwork for both lenders and potential borrowers and
more importantly, increased costs for the borrower. These costs include
site assessments, compliance audits and higher financing charges for SBA
guaranteed loans.
In addition, those small businesses which have been able] to stay outside
the regulatory loop have even less incentive or desire to consider funnelling
time and resources into pollution prevention and in approaching | banks to begin
with. These businesses are probably unaware of the potential cost savings of
pollution prevention investments. Small businesses face enormous costs of
compliance and generally lack an understanding of how today's) complex web
of regulations will specifically affect their business operations. Understanding
and complying with environmental issues is a low priority item cpmpared to
simply managing the business and meeting daily operating expenses,
especially for very small companies.
Lenders can and do play some role in counseling businesses and
making them aware of environmental regulations - but primarily for the bank's
own protection. Generally, they do not consider it their responsibility to educate
these businesses about the benefits of pollution prevention and the potential
cost savings. The role of the EPA and state agencies should increasingly be
focused on identifying ways to educate and encourage small businesses to
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12
consider pollution prevention while minimizing the time and resources the
company has to spend on developing a project.
Therefore, a complete program of pollution prevention assistance
services would need to stress the tangible benefits of pollution prevention to
small businesses. This "package deal" should include the following services
and/or incentives to help, offset the initial costs of pollution prevention
implementation and financing:
j
Free on-site technical assistance through an independent
entity. Since many small businesses are afraid that they may already be
in violation of an environmental regulation, they will normally not
approach a state regulatory agency for technical assistance. Instead, the
federal and/or state governments should funnel available funds through
an independent entity, such as a university. This technical assistance
should include concrete actions that the small businesses can take to
incorporate pollution prevention into their facility planning and the total
costs of these actions. Companies should also be able to receive a list of
pollution prevention equipment manufacturers and distributors specific for
their industry.
Free compliance advice from a multi-media perspective.
Companies should receive multi-media compliance advice as part of the
technical assistance visit. For example, they should be shown how the
recommended changes will help them achieve or stay in compliance.
These recommendations should also highlight the future benefits of
pollution prevention from a regulatory perspective - such as a reduced
need for monitoring, inspection, enforcement and oversight. Companies
should also be able to call the state regulatory agency directly for multi-
media compliance advice or at least direction to the proper source of
information. Ideally, the company should be able to receive a free
compliance audit that a bank would also accept as verification of
compliance. .
Free financial counseling. One component of a financial counseling
program should be to encourage and teach businesses how to use a total
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13
cost accounting approach to the financial analysis of pollution prevention
investments. (Note: As part of its Design for the Environment program,
.EPA's Office of Pollution Prevention and Toxics is currently developing
and piloting financial tools that would enable companies to ^se such an
approach). It is important that a company fully justify all of its projected
costs and benefits, first for its own internal purposes and then for the
purposes of a loan request. As businesses begin using a tptal cost
accounting approach, the EPA should work with a banking jassociation
such as RMA to educate lenders about these alternative wsiys of
evaluating pollution prevention investments.
Small businesses should also be able to approach a smallj business
assistance center for counseling on general bank requirements and
barriers to lending, especially where environmental risk is ^n issue. This
center should offer the following information: a copy of a Phase I
Environmental Site Assessment; a list of the local engineering and
consulting firms which perform site assessments; an overview of SBA
guaranteed loan requirements and local SBA lenders; andj a list of State
grant or low-interest financing programs for pollution prevention.
> i
It is important that state agencies increasingly work with 19031
organizations, such as small business development centers, industry trade
associations and the Chamber of Commerce to better familiarize themselves
with small business needs. Ultimately, these agencies should lake full
advantage of the existing information network of industry trade publications,
newsletters and local workshops to publicize pollution prevention services and
benefits.
Additional monetary incentives for pollution prevention afe, and should
increasingly be offered through state agencies. These incentives may take the
form of financial penalties and fees for waste generation and financial
assistance and tax breaks for investing in pollution prevention research and
capital expenditures. However, fees can only be truly effective if they are
assessed on a multi-media basis and charged in a way to enccjurage reduction
where the resulting environmental and health risks are the greatest Grants and
low-interest loan programs offered through a State commerce department and a
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State environmental agency are also effective ways to encourage pollution
prevention investments. In either case, the implementation of economic
incentive strategies-tailored more closely to the risks posed can be a very
efficient way to foster pollution prevention investments.
Concrete steps also need to be taken to overcome bankers' concerns
about the uncertainty of environmental risks which have been created by
environmental regulations. Specifically, the EPA and state
environmental agencies need to be prepared to quantify - in a
realistic price range and time frame - the total costs of cleaning up
a contaminated site. Currently, banks have been forced to write-off loans
since, at the time a company becomes bankrupt, clean-up costs are unknown
and unlimited. One lender commented that a bank would be prepared to pay
for environmental clean-up costs if the bank knew these costs before having to
decide whether it should foreclose on the property (and potentially become
liable for these unknown costs) or write-off the loan and limit its total losses.
Only when banks can better quantify environmental risks will they be able to
eliminate some of the existing barriers to lending.
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APPENDIX A
1. Business Loans and the SBA
2. SBA lender's Application
3. SBA Environmental Questionnaire
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[Number
SMALL BUSINESS ADMINISTRATION ' "~ ,
LENDER'S APPLICATION FOR GUARANTY
OR PARTICIPATION ;
Lander
[dress . '
Telephone (inc A/C) !
City
1
Loan Submitted As:
DReg.7(a)
DCLP
DPLP
R. L Folk's Lender No.
State ' Zip
piPOSE TO MAKE A (Check One)
Lenders Share SBA Share
Guaranteed Loan % %
Lender's Share SBA Share
mmediate Participation Loan
Lender to make and service) . % %
merest Rate
* % Per Annum
Term of Loan
Yeai»
Amount of Loan $
Payment Beginning Monthly Payment
Uonttn from D.t. «f Mai. it
If Interest Rate is to be Variable Adjustment Period
'1
Base Rate Spread |
Btse Rate Source
5ITIONS OF LENDER (e.g., Insurance requirements, standbys other conditions. Use additional sheets) i
irove this application to SBA subject to the terms and conditions outlined above. Without the participation of SBA to the extent applied for we would not be willing to make
loan/and in our opinion the financial assistance applied for is not otherwise available on reasonable terms. I certify that none of the Lender's employees, officers, directors
ibstantial stockholders (more than 10%) have a financial interest in the applicant.
r Official:
TOe
Dote
PLP SUBMISSION ONLY: I approve and certify that the applicant is a small business according to the standards in 13 CFR 121, the
(ins proceeds will be used for an eligible purpose and the owners and managers of the applicant business are of good
aracter. .
*
lure
Recommendation, if Required .
Mure
Approve
D««n.SUle
Reason(*)
«-
TWe
Approve
Dote
D^ine8*"
Reasonfs)
Title i
Dote
THIS BLOCK TO BE COMPLETED BY SBA OFFICIAL TAKING FINAL ACTION |
Approve
Decline8*" - ' !
Reason(s)
lature
Title i
. ' 1
Date
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INSTRUCTIONS: Lender will complete and enclose as part of this application package, all working papers, support material and agreemi
requested herein, specifically Including: .
1. Balance shoot and ratio analysis - comment on trends, 3. Management skill of the applicant.
debt to worth and cuPrent ratio. - 4. Collateral offered and lien position, and analysis of collateral adeiqu
2. Lenders analysis of repayment ability. 5. Lenders credit experience with the applicant. Identify Weaknesses.
FINANCIAL SPREAD , 1
BALANCE SHEET
Assets
Cash
Accounts Rec.
Inventory
Other
Total Current Assets
Fixed Assets
Other Assets
Total Assets
Liabilities & Nat Worth
Accounts Payable
Notes Payable
Taxes
Other:
SBA
Total Current Liabilities
Notes Payable
SBA
Other
Total Liabilities
Not Worth
Total Llab. & Net Worh
Profit & Loss
Sales
Depreciation
Income Taxes
W/D Officer Comp.
Not Profit After Tax/Deprec.
As of
,
$
$
$
$
$
$
$ .
$
Fiscal Year Ends
DEBIT
S . ' ' '
$ ,
$
'
$
$
$
$
,$ ' .
PRIOR THREE YEARS
$ $ $
$ ' $ $
AUDITED D
CREDIT
$
'
,
$
'$
$
$
'$
$,
$
UNAUDITED O I
PRO FORMA j
$ i
. .
. - - I
$ ' !
' - i ' !
$
$ '
$ . ,
'
$ :
$
$
INTERIM PROJECTIONS
$ $ $
'
$ ' $' . , $
PRO FORMA SCHEDULE OF FIXED OBLIGATIONS
YEAR1
$
YEARS
$
YEARS
*'
YEAR 4
$
Lenders Analysis:
SBAFMTO4.1
era IK
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Questionnaire
tions- The following shall be used as a guide to determine if a Phase I or; Phase H audit is needed, and
r^mpte4 during an on-site inspection by the lender where commercial real estate is to be taken as
eral (residential real estate is excluded).
Determine the prior, current, and planned uses for the property. If ig* of these uses involves am
operation that used or uses toxic chemicals, conduct a Phase I audit. (Discussions with
current/prospective owners can help identify uses.) , '
To the extent possible, determine the prior, current, and planned uses of all adjoining property. If any
'of tfaeL u£s involves an operation that used or uses toxic chemicals, conduct a Phase I audit. (Discussions
with current/prospective owners, as well as a visual check, can help identify uses.)
Conduct a visual inspection of the facility, preferably accompanied by current owners. The following
observations may trigger the need for a Phase I audit.
- any evidence that chemicals are used in the operation of the facility
- discarded chemical containers
- waste piles of any type (ask about buried waste and the presence of underground storage tanks
- evidence of distressed vegetation or non-vegetative areas
- oily films on standing water
- discolored soils
- unusual odors
Determine that the applicant has all relevant environmental permits and/or notifications in place. If not
conduct a Phase I audit. (Local regulatory authorities could be consulted for assistance on requirements.)
Determine whether the faculty has ever been involved in:
- any citations, claims, or complaints regarding environmental problems
- any notices of violation
- any environmental clean-up actions
(Discussions with the applicant, as well as local regulatory authorities, «in identify faculty abuse.) If yes
on any point, conduct a Phase I audit.
NOTE: TUMBLE PAGE FOR
RECOMMENDATION AND REPORT
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lender or $B A Report on Issues
Bv this Questionnaire!
Recommendation:
Acknowledgement bv the Applicant?
I acknowledge that I have read this questionnaire, and have responded to the issues and
questions posed therein to the best of my knowledge.
(Corporation)
by
(Other)
by
Business Name
Business Name
(Title)
(Title)
2/1/93
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16
APPENDIX B
In a traditional credit analysis of a small business, a bank reviews the
following factors:
i , i. , ,
i
Management. The business owners, their characters, personal assets
and individual credit reports are evaluated.
Cash Flow Cash flow is the primary source of repayment for the loan.
Does the company generate adequate cash from operations to finance
operating expenses, financing and investments needs? ISjthe business
viable?
i
Collateral. Collateral is the secondary source of repayment for the
loan and is typically real estate or equipment. If the collateral must be
liquidated, will there be adequate funds to repay the outstanding
/principal and interest on the loan?
Personal Assets or Guarantee of the Business Owner. The
banks considers the owner's personal assets as a JJairiLs2ume_oj
repayment. Can the business owner pledge his or her own personal ...
assets in case the business fails and the collateral, if liquidated, will not
sufficiently repay the outstanding principal and interest? The Small
Business Administration requires a personal guarantee frpm any owner
with more than 20% ownership of the business.
Balance Sheet Analysis. What is the percentage of debt to capital
(capital= debt + equity)? Is it typical for the industry?
Working Capital Analysis. Does the company adequately manage
inventory and receivables?
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