Bouncing back – Lending to businesses in the aftermath of a disaster
In the aftermath of a natural or man-made disaster, small businesses often need immediate access to capital to tide them over. But lending to a company experiencing extreme challenges following a major weather event, such as a hurricane or an earthquake, is risky, especially if a business must relocate and rebuild its operations in a new location. This article provides some guidance for lenders in deciding which applicants to approve, offering several criteria to consider — including the extent of the damage, whether a company has dealt with disaster before and its previous performance.
Lender as Detective: How to Evaluate Management Estimates
It’s important for lenders to make distinctions between their borrowers’ financial certainties and estimates based on management judgment. Lenders need to be able to ascertain when errors, either intentional or unintentional, may occur — errors that can make a big difference in a borrower’s financial health. This article suggests some strategies for lenders, such as paying attention to accounting estimates and fair value measurements, in helping them determine whether the assumptions behind a borrower’s numbers are valid.
An Appraisal of Your Borrower’s Collateral Can Be Invaluable
It’s important for lenders to take a hard look at the current market value of a borrower’s assets periodically. One way to do so is to obtain a formal asset appraisal. This article explains the most common valuation techniques and how appraisers determine the appropriate standard of value. The article notes that an appraiser also can help a lender understand how much cash a borrower is likely to receive under various liquidation scenarios and help support decisions to reorganize or liquidate.