I. SCOPE OF APPLICATION
This Evaluation Guide applies to loans to medium-sized companies, whose definition according to Resolution SBS 11356 - 2008, is as follows:
credit-evaluation-guide-to-medium-businessMedium Business Credits
They are those credits granted to legal entities that have a total indebtedness in the financial system of more than S /. 300,000 in the last six (6) months and do not meet the characteristics to be classified as corporate or large company loans.
Also considered as loans to medium-sized companies are loans granted to individuals who have a total indebtedness in the financial system (not including mortgage loans for housing) greater than S /. 300,000 in the last six (6) months, provided that a part of said indebtedness corresponds to loans to small companies or micro-companies, otherwise they will remain classified as consumer loans.
For evaluation methodology purposes, once the client is assigned to the Medium Business segment, he should not return to the Micro or Small Business Segment, even when his debt is reduced to non-Retail debtor levels. However, it will continue to report to the SBS, according to the type of credit that corresponds, according to current regulations.
II. MINIMUM REQUIREMENTS
FINANCIAL STATEMENTS (FS)
• EEFF. updated, maximum two months old and the last two years, immediately prior to the date of the credit evaluation:
- Balance sheet.
- Profit and Loss Statement.
- Statement of cash flows.
- Statement of Changes in Net Equity.
• Copies of the last three (03) PDT's.
• EEFF. SUNAT of the last two years, immediately preceding the date of the credit evaluation.
• Notes corresponding to the RUs.
• Active and passive positions in each type of currency, national and foreign, as well as information about the detail of income and expenses in each type of currency, national and foreign, on an annual comparative basis.
CASH FLOW
• Operating, historical and projected cash flow (must incorporate the pessimistic scenario).
COMMERCIAL REPORT (Annex 1)
• Commercial report of the credit applicant, duly completed and signed by the client and updated for each credit.
AFFIDAVIT OF ASSETS (Annex 2)
• Patrimonial Declaration of the Holder and the Joint and several sureties of the credit operation and updated for each credit.
NOTES
• The RUs and the Cash Flow must be endorsed by the client and a Certified Public Accountant - CPC, being verifiable on the website of each College of Accountants.
• In the case of economic groups, at the time of the credit proposal, you must present the RUs of each of the related companies and the RUs. consolidated.
• Additionally, the documentation indicated in the Credit Regulations must be considered.
III. TRACING
Post-Investment Report
The Business Advisor, within sixty (60) days after the total disbursement, must make a Post-Investment Report, verifying that the conditions of the destination of the credit granted are fulfilled, both for working capital and for fixed assets (Annex 4).
Additional Information
The Business Advisor, every one hundred eighty (180) days from the disbursement date and together with the update of the Financial Statements.
The obligation to report the Financial Statements will be maintained as long as the responsibility with the Financial Entity is in force, and it must have, at a minimum, a semi-annual update periodicity in the case of the Balance Sheet and the Statement of Profits and Losses and annual in the case of the Statements of Changes in Equity and Cash Flow (Annex 5).
IV. ANALYSIS TOOLS
All credit operations must have five sections, which are detailed below:
Administration
Analysis of the character of the legal representatives, shareholders, partners and / or owners of the company requesting the loan.
Financial Condition
Balance Sheet
Statement of Profit and Loss.
Statement of Cash Flows Statement
of Changes in Equity.
Flow of Sources and Uses of Funds (optional).
• Operating, historical and projected cash flow (must incorporate the pessimistic scenario).
• Financial ratios, ratios or indices.
• Horizontal and vertical analysis
Structure, Collaterals & Guarantees
In the case of loans with preferred guarantees, the total amount of the loans must not exceed 80% (will depend on the risk appetite of the Financial Institution) of the realization value.
4.1 ADMINISTRATION
Before any credit evaluation, it is vitally important to know the moral quality of the potential client, which is reflected in his personal integrity, good repute, public and private reputation, all of which represents a guarantee for the start of any credit transaction. Let's not forget that "if a client can pay but does not want to pay, he does not pay".
The traditional forms of analysis of the character of the client include the review of the legal representatives, shareholders, partners and / or owners in the external Risk Centers, in the internal negative files, as well as the personal references of third parties, among others, with the in order to verify and evaluate their moral quality.
a) EXTERNAL RISK CENTERS
The Business Advisor must verify that the legal representatives, shareholders, partners and / or owners and Joint and several guarantors related to the proposed credit do not have debts in past due condition, in judicial collection or in penalties; nor protested letters without clarifying.
This will involve carrying out the following compulsory activities:
• The applicant, in case he has credits in other financial institutions, must present his payment schedules with a copy of the vouchers of the last installment canceled. Likewise, references at said institutions must be attached, indicating the name and surname and telephone number of the person contacted.
• The printing of the Risk Center must contain consolidated information in a summary table of the debts indicating: Entity, principal balance, No. of installments paid, No. of outstanding installments and amount of each installment.
• The participants of the credit that register protests or overdue credits with delinquency of less than 30 days must be duly clarified and / or corrected.
• In the case of a legal person, all those who make up the company must be included (use the information from the Commercial Report if applicable), as well as those who have transferred or sold shares or presumed direct or indirect links. The search will be carried out in the risk center and will include in the system and file.
• These activities must be complemented with the search for credit participants in the SUNAT headquarters, typing only the surnames and verifying all the approximations (similar or equal surnames), verifying both fiscal and legal addresses and comparing it with the address of the participants in this credit. If the information is positive, you should search the risk center for the people detected.
b) INTERNAL NEGATIVE FILE (BLACK LIST)
The Business Advisor must verify that the legal representatives, shareholders, partners and / or owners and Joint and several guarantors related to the proposed credit are not in the negative customer record, which basically includes historical information regarding rejected requests, unpleasant customers, spouses of rejected clients and / or behavior of previous payment of clients, as well as negative information received from the National Tax Administration Authority, the Judiciary, the Public Ministry, among others.
The Business Adviser, in case it determines that the lifting of such restriction is appropriate, must request the corresponding authorizations, as established in the internal regulations, as a previous step to continue with the credit evaluation.
c) SUPPLIERS
The Business Advisor must request commercial references from the client's main suppliers, the same ones identified in the Commercial Report. The names and surnames and telephone numbers of the people contacted must be indicated in the credit evaluation.
d) CUSTOMERS
In case the situation warrants it, the Business Advisor must collect references from the main clients, in order to know the quality of products and / or services of the potential debtor; as well as the fulfillment of the agreed commitments. The relationship of main clients are identified in the Commercial Report.
e) ASSOCIATIONS
In case the client belongs to an association of businessmen of the heading or similar, the Business Adviser should contact the representatives and ask for references from the potential borrower. The names and surnames and telephone numbers of the people contacted must be indicated in the credit evaluation.
f) VISIT ON SITE TO THE BUSINESS AND HOME OF THE CLIENT
The Business Advisor must verify the financial information reached by the client, contrasting the most representative items, such as: inventories, trade accounts receivable, fixed assets, sales levels, among others.
g) GUARANTEE VISIT
The Business Advisor must verify the existence and reasonableness between the amount of the loan granted and the value of the guarantees received.
In addition to the points indicated above, the Business Adviser must evaluate the debtor's management capacity, measured through the following guidelines:
- Business experience: previous successes that can be verified
- Professional level: occupied positions in the business, level of education, knowledge of business technology.
- Organizational culture: it must be aligned with the business objectives, promote the participation of its managers or key personnel in decisions: Workers must know the business objectives.
- Level of turnover of key personnel
h) COMPLIANCE WITH THE LAW OF MONEY LAUNDERING AND FINANCING OF TERRITORISM
The Business Advisor must comply with the stipulations of the current “Manual on Prevention of Money Laundering and Terrorism Financing”. This document contains the application of all prevention regulations in the Financial Institution.
4.2 ENVIRONMENT
a) PEST ANALYSIS
The PEST analysis identifies factors in the general environment that will affect companies. This analysis is performed before carrying out the SWOT analysis. The factors are classified into four blocks:
• Political - legal: Related to the legal stability of the country and to the tax policies and regulations related to the productive activity of the client.
• Economic: Regarding the macroeconomic environment of the country, such as the economic cycle, evolution of GDP, interest rates, money supply, evolution of prices, unemployment rate, available income, availability and distribution of resources, level of development etc.
• Socio-cultural: In relation to demographic evolution, income distribution, social mobility, changes in lifestyle, consumer attitude, educational level, cultural patterns, etc.
• Technological: Determined by public spending on research, government and industry concerns about technology, degree of obsolescence, maturity of conventional technologies, development of new products, speed of technology transmission, etc.
Additionally, the environmental factors are usually added:
• Ecological: Impact on the environment, benefits and damages for the immediate environmental environment and the biosphere.
Note: See Case in Annex Nº 6
4.3 INDUSTRY AND COMPETITIVE POSITION
4.31. SWOT
The SWOT evaluates the strengths, opportunities, weaknesses and threats of the business. The strengths and weaknesses are determined within the business and the opportunities and threats outside it.
Examples of strengths:
• Product, product quality and reliability
• Better product performance compared to competitors
• Better product life and durability
• Some employees have experience in the end customer sector
• Available customer list
• Deliverability Direct
• Continuous product improvements
• Can be served from current facilities
• Products have the necessary accreditation
• Processes and IT can be adapted
• Management is committed and confident
Examples of weaknesses
• The list of clients has not been verified
• Certain range gaps for certain sectors
• Little direct marketing experience
• Need for a larger sales force
• Limited budget
• Delivery personnel need training
• Processes and systems
• Management team is insufficient Examples of opportunities
• New products could be developed
• Local competitors have products from Low quality
• Profit margins are high
• End customers respond to new ideas
• May surprise the competition
• Better agreements with suppliers could be achieved
Examples of threats
• Impact of legislation.
• The environmental effects could favor large competitors
• Risk for current distribution
• Market demand is very seasonal
• Possible negative publicity
• Vulnerability to large competitors
Note: See Case in Annex Nº 7
4.32. VALUE CHAIN
The analysis of the interior of the business could focus on the Value Chain (Porter, 1985), identifying where its strengths or weaknesses are generated, if in the primary activities (inbound logistics, operations, outbound logistics, marketing and sales, services) and / or support (company infrastructure, human resources management, development technology, supply).
In the case of the Credit Report, at least one strength of the client must be identified within its value chain. For example, in human resources we could evaluate: the work environment, motivation, organizational culture, management style, alignment of the organization with the strategy, among others.
It is not necessary to analyze the entire value chain.
4.33. PORTER DIAMOND
A second analysis, complementary to the SWOT, is that of Michael Porter's five forces, which considers:
1) The threat of entry of new competitors,
2) The bargaining power of suppliers,
3) The bargaining power of buyers, 4) The threat of entry of substitute products and 5) The rivalry between competitors.
See case in Annex No. 8
4.4 FINANCIAL CONDITION
Main Assessment Tools:
• Balance Sheet
• Profit and Loss Statements • Cash Flow Statement.
• Statement of Changes in Equity.
• Analysis of Flow of Sources and Uses of Funds (optional).
• Financial ratios, ratios or indices.
• Horizontal and vertical analysis
• Historical and projected Cash Flow (with normal and pessimistic scenario).
Annex N ° 3 explains in detail each of the Financial Statements, ratios and Cash Flow for reference. In point V. these tools are used to define the amounts and terms for the granting of the different types of credits.
4.5 STRUCTURE, COLLATERALS & GUARANTEES
The guarantee is a complement to the credit evaluation. It does not replace it.
a) MORTGAGE GUARANTEES
• The validity period of an appraisal for the segment will be a maximum of two years. After this period, the values must be updated with a new appraisal. If after the appraisal, the guarantee does not cover the credit granted, additional mortgage guarantees must be presented.
• If an additional credit is requested and the guarantee does not cover the new credit requested, an extension of the guarantee and a new appraisal must be carried out, or else additional mortgage guarantees must be presented.
• The treatment of guarantees is governed by the Credit Institution Credit Regulations.
b) FURNITURE GUARANTEES
Credit may be granted with security interest for all the credit modalities described in this guide (it will depend on each Financial Institution)
c) SOLIDARITY BONDS
• For Legal Persons, the presentation of the majority owner as joint and several guarantor is mandatory, understanding as such the partner or partners that together add up to 50% or more of the total corporate participation.
• All clients who have been served with a credit and which have been granted with a joint guarantor and a modification or refinancing is approved, both must re-sign the respective contracts.
The requirements that the joint guarantors must prove are the following:
• The maximum age of the guarantors will be 75 years.
• Have assets made up of movable property (movable guarantees) or real estate.
• It must have the same customer profile, in terms of Classification in the Financial System, Financial Institution, protests and past due debts.
The amount of the non-preferred guarantees granted by the Joint Surety will be subtracted for the calculation of new loans, which should not exceed a maximum amount to be determined by the Financial Institution.
V. CALCULATION OF THE AMOUNT ALLOCATED TO THE CREDIT
For the calculation of the maximum credit amount to be granted, the qualitative evaluation of the client, the Industry and Competitive Position, the financial condition of the company, the structure, collaterals & guarantees and the environment (PEST) will be taken into account.
For the purposes of the qualitative evaluation, the character of the legal representatives, shareholders, partners and / or owners of the company requesting the loan will be considered as analysis tools.
Regarding the analysis of the Industry and Competitive Position, the use of tools such as the SWOT, the Value Chain and the Porter Diamond will be taken into consideration.
In the case of financial condition, the Net Cash Flow (FCN), the business operating cycle, the composition of the Balance Sheet items and the ratios will be taken into account; according to the case.
Without a client does not qualify in the qualitative evaluation, the credit will not be granted.
5.1 Amount to be financed for Working Capital
It is based on the premise that the evaluation of the ability to pay must be carried out on the basis of the current figures of the business, not including the new figures generated by the destination of the credit. That is, if working capital is to be financed, the new income derived from the loan should not be included in the evaluation of the ability to pay.
Providing working capital loans based on sales volume will not be considered, since it would imply ignoring business rotations and Balance Sheet items. For example, it could be the case of financing working capital to clients with a negative Cash Conversion Cycle, who do not need financing, which could lead to the diversion of funds to activities outside the business. The only exception is the credits per campaign, which may be granted based on a percentage of sales volume and must be cancellable.
5.1.1 By the method of the Balance
sheet items o The amount to be granted is limited by the balance of the Current Assets (Cash and Banks, Inventories, Trade Accounts Receivable) and Current Liabilities (Current Debt with Banks destined for financing Capital of Work and Commercial Accounts Payable).
In the case of new clients, the maximum amount to be financed must not exceed 80% of the reference amount; and in the case of recurring clients, 100% of it.
The maximum term will be up to 12 months for new and recurring clients.
In all cases, the balance of the Cash Flow Operating Activities or the Net Operating Generation of the Flow of Sources and Uses of Funds must register a positive balance, since if this were not the case, the sustainability of the company would not be sustained by the activities of the business, but in the Investment or Financial Activities; which would make it necessary to rethink the company, a risk in which we should not participate.
5.1.2 By the Cash Conversion Cycle (CCE) method
An important tool to calculate a company's working capital needs is the Cash Conversion Cycle (CCE). However, some recommendations should be taken into account, such as considering the calculation of the Average Collection Days (DPC) and Average Payment Days (DPP) ratios, always, Total Sales on Credit and Purchases on Credit; which, by the way, will allow us to determine if the company is properly executing its credit policies and complying with the payment to suppliers, within the agreed terms.
The business cash conversion cycle is made up of three elements:
Average Inventory Days (DPI)
Average Collection
Days (DPC) Average Payment Days (DPP)
Its formula is as follows:
CCE = DPI + DPC - DPP (1)
The interpretation is as follows: If the Average Days of Inventory (DPI) and the Average Days of Collection (DPC) exceed the Average Days of Payment (DPP), the company will have a cash conversion cycle (CCE). In other words, if the days of credit received from suppliers (DPP) are insufficient to finance the credit granted to customers (DPC) and the days the merchandise is kept in warehouses (DPI), the company will have a cycle Cash Conversion (CCE). If so, you will require a loan for working capital, unless you finance your needs with your own resources, that is, with equity (capital and accumulated results).
Example:
There is the case of a company that registers the following information:
Average Inventory Days (DPI): 60 days
Average Collection Days (DPC): 40 days
Average Payment Days (DPP): 45 days
Applying formula (1):
CCE = 60 days + 40 days - 45 days = 55 days
In other words, the company generates a Cash Conversion Cycle (CCE) of 55 days, which it has to finance in some way: with its own resources (equity) or with resources from Credit Institutions.
Now, the next step is to convert the 55 days into monetary units, for this we are going to complement the example with the following information:
There is a simple way to convert the Cash Conversion Cycle (CCE) into monetary units, through the result of the product of the Cash Conversion Cycle (CCE) and the Daily Cost of Sale (CVD), as described below.:
Cash Conversion Cycle (CCE): 55 days
Total Cost of Sales: $.7'500,000
Number of days in the year:
360
Daily Cost of Sale (CVD): $.20,833.33
RESOURCES NEEDED: $. 1,145,833.33 (CCE x CVD)
Important details to take into account
The Cash Conversion Cycle (CCE), as initially indicated, is calculated based on the
Average Days of Inventory (DPI), the Average Days of Collection (DPC) and the Average Days of Payment (DPP). The question is: How are each of these ratios calculated? The answer is as follows:
Average Days of Inventory (DPI)
= (Inventories / Total Cost of Sales) x (“n” x 30)
Average Collection Days (DPC)
= (Commercial Accounts Receivable / Total Credit Sales) x (“n” x 30)
Average Payment Days (DPP)
= (Commercial Accounts Payable / Cost of Credit Sales) x (“n” x 30)
Where:
"N" = number of months
As can be seen, in the case of the DPC and DPP, neither Total Sales nor Total Sales Costs are used, but Total Credit Sales and Credit Sales Costs, since the ratios measure the collections of the sales on credit and payments on credit purchases.
Between the two methods, the Balance Sheet Items method should be applied, since the Cash Conversion Cycle method involves knowing precisely the company's cash purchases and sales and credit. However, it may be used in a complementary way.
5.2 Amount to be financed for Fixed Assets
Within the fixed asset credits, two modalities are identified that depend on the destination of the credit.
- Movable Property Financing, considers financing directed to the purchase of machines, transport units for the business, equipment, etc. These movable assets may have the condition of new or used. Real Estate Financing, considers financing aimed at the purchase or expansion of commercial premises.
The maximum amount to be financed will depend on the payment capacity, which will be measured by the NET CASH FLOW (FCN), which is what remains in the business after covering all its operating needs and payment of debts contracted to finance the purchase. of fixed assets.
In the calculation of the FCN, loans for working capital are not considered, since their payment comes from the realization of the Asset items (commercial accounts receivable and inventories) of the Balance Sheet.
In the applications for loans for working capital, the analysis of the Net Cash Flow (FCN) must also be carried out, in order to verify that the company generates sufficient resources to cover its obligations from the financing of fixed assets and there is no possibility of diversion of funds towards said payments.
Net cash flow (FCN)
FCN = (UO + D - T) - A - I FCN = EBITDA - A - I
UO: Operating profit
D: Depreciation
T: Taxes
I: Annual interest on debt for
fixed assets
A: Amortization annual debt for
Fixed assets
In the case of recurring clients, the amount of the annual installments of the loan to be financed must not exceed 80% of the FCN; and, in the case of new clients, 60% of the FCN.
Example:
FIGURES OBTAINED FROM THE US CLOSING YEAR
Total Sales S /. 6,798,986.00
Operating Income (OU) S /. 262,441.00
Income Tax (T) S /. 60,703.00
Short-term Bank Debt S /. 420,000.00
- Loan for working capital S /. 300,000.00
- Loan for fixed assets (A + I) S /. 120,000.00
Depreciation of the year (D) S /. 157,815.00
EBITDA (UO + D - T) S /. 359,553.00
Net Cash Flow (EBITDA - A + I) S /. 239,553.00
Current part of the new debt S /. 150,000.00
In the present example, the current part of the new debt (S /. 150,000) is 62,617% of the Net Cash Flow (S /. 239,553). Therefore, it would qualify to be a recurring client.
If there are no recent-year-end EFFs, the FCN obtained from the EFFs must be annualized. of Situation, indicating the assumptions for its elaboration.
SAW. CREDIT POLICY
6.1 DEBT POSITION
The client's debtor position must consider all the direct and contingent debts that the client maintains in the Financial Institution. It is necessary, at the time of the evaluation, to consider as debts of the client, the credits that are in the application status of Approved in the Financial Institution.
6.2 LINKING AND ECONOMIC GROUPS
The definitions of linkage and economic groups are regulated by SBS Resolution No. 445 - 2000 dated June 28, 2000 (see Annex 9)
6.3 CREDIT REPORT
The Credit Report will have fourteen (14) parts (see Annex 10):
1. General information
- Name of the client
- Date of incorporation
- Official Document of Identity (DOI) of the client
- CIUU
- Economic Group - Related
companies - Business
Advisor
- Date
- Agency
- SBS classification (last)
- External Classification of the Entity Financial (N, CPP, Doubtful Def., Loss) - Internal note from the Financial Institution (if any).
- Accounting Classification (Current, past due, refinanced, restructured)
- Seniority of the client
- Company shareholders and shareholding share
- Names and surnames of main executives, positions and DOI
- Client position in the Financial Institution
- Group Position in the Financial Institution
2. Proposed risks
3. Type of Operation (Normal, Renewal, Reprogramming, Refinancing, etc.)
4. Currency and amount (S / or USD)
5. Type of credit (Loan for working capital, Loan for Fixed Assets, Financing through the leasing modality, etc.).
6. Rate / Commission (rates, fees, proposed commissions)
7. Maturity / Reimbursement (maturity of installments and total term of the loan)
8. Proposed guarantees (detail)
9. Support of the operation
- Destination of the credit
- Description of the business
- Industry and Competitive Position (SWOT and Porter's Diamond)
- Financial Condition
- Analysis of ratios
- Horizontal and Vertical
Analysis - Cash Flow
Analysis - Global Analysis
10. Debt position of the client and Economic Group in the Financial System
11. Analysis of the Environment (PEST)
12. Methodology of the FSUs.
13. Ratio table
14. Flow of Sources and Uses of Funds (optional)
VII. EXCEPTION MANAGEMENT
Credit operations that do not comply with credit policies or regulations that imply restrictions towards their approval or disbursement, will be governed according to the Procedure Manual that regulates Exceptions.
These exceptions must be duly registered, justified and supported, and will be reported monthly to the Credit Management.
The Credit Department is directly responsible for informing the Credit Management of all the exceptions that have been made in each month, including in said information the credit details, officials who authorize and the reasons for said authorization; in addition to proposing and adopting timely measures to prevent the incidence of exceptions from affecting normal credit management.
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