Catherine M. Pugin
         through a National Network for
  Environmental Management Studies fellowship
      U.S. Environmental Protection Agency
   Environmental Services Division for Regionjlll
          Philadelphia, Pennsylvania
               November 1993


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


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

 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

       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.
      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.

        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

      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.                                                            .

      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:

       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'

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

      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.

      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.

      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

      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.

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.

      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.

      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

 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:
     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

    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

      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

 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.

        APPENDIX A
1.  Business Loans and the SBA
2.  SBA lender's Application
3.  SBA Environmental Questionnaire


                                                              paaiuEJEtiS aSejsod uiroai puE 3uipiB*uoj

                                                                     00£$ I3sn 3fc*V& JOJ &lBU'd

                                                                           ssainsng (Eiamo
                                                                          3d 'uoi

                                                                      •y^-S 'isans PJ«IL 60*
                                                              uopEJjsiuiiupv ssamsng neuis "STl

                                .*• 5 s «
                                Is II
f   3
                                c -0-.S e
                                g w .3 —
                                fc -S S -^
                                  C 51 g

                                 > 2 2  o
                                 ON vn -a  o
                                            c **-*
               ID **


               ca j~.

I   "
               S^S JS =*  *-

                & CO .S   Q)

              ..... r* ^ M!   •*•*
                       35 a.
                                     i £ «    <*;

                                     g-S § g C S
                                     O —i _e* !5 *C I*-
      | .5

  s &-j §

  8 ° .S o

o g, .o -3. ffl


£ 1) V  O OO
« o O  i\15
cw P-  •  •« »
a- . *?  8 ^
^* >•» ^  ^ ^
H .is s Hs Q
s are extei


                                                                                § S3
a. —
." i

5.1 "i
«> a.
=s SB
•<; -s




[dress . '
Telephone (inc A/C) !
Loan Submitted As:
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
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:
  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.                                                                                    .
• *
• Recommendation, if Required .
•«••- •

Title i

Decline8*" - ' !
Title i
. ' 1

   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.

Accounts Rec.
Total Current Assets
Fixed Assets
Other Assets
Total Assets
Liabilities & Nat Worth
Accounts Payable
Notes Payable
Total Current Liabilities
Notes Payable
Total Liabilities
Not Worth
Total Llab. & Net Worh
Profit & Loss
Income Taxes
W/D Officer Comp.
Not Profit After Tax/Deprec.
As of
, •






$ ••. •
Fiscal Year Ends

S . ' ' ' •

$ ,

$ •



,$ •' .
$ $ $

$ ' $ $

$ •






$ i

. .
. - -• I
$ ' !
' - i ' !

$ '
$• . ,

$ • :
$ $ $

$ ' $' . • , $

$ •
  Lenders Analysis:
                                                                                                                               era IK

 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

lender or $B A Report on Issues
                                                    Bv this Questionnaire!
 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.


                                             Business Name
                              Business Name

                             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
      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?