Lending to Corporate Members

1
Lending to Corporate Members

• Eric Thompson
• Manager
• 2 Shires Credit Union

2
What I am going to cover

• Who am I
• What is a Corporate member
• Whats different
• How to assess a lending request
• How can we make it work
• General thoughts
• Any questions

3
Who am I

• Was a banker for 27 years
• Over 20 years lending to businesses
• Moved into this sector in 2004
• Was CEO of Sheffield Credit Union for 7 years
• Was a Director of the CDFA for 4 years
• Became Manager of 2 Shires Credit Union
  formerly Worksop District CU in April

4
What is a Corporate Member

• Strict definition of Corporate is anything not
  an individual e.g. Partnership, Limited Company,
  Charity.
• For our purposes it is any lending which will
  not be repaid from an individuals income from
  employment or benefits.
• It could therefore be lending to an individual
  for a business purpose. E.g. a window cleaner
  buying some ladders.

5
Whats different

• Repayment will not be coming from an individuals
  income earned through employment or from an
  entitlement to benefits
• The money raised to make repayments will come
  from some other source - mostly providing a
  product or service at a profit

6
How to assess alending request

• This is not the definitive process for assessing
  a request but an overview of the kind of process
  that will be needed.
• It is a completely different set of skills to
  those required to assess a personal lending
  request.
• It is much more detailed and time consuming

7
Where do you start

• You will need to see a business plan which
  includes-
• Details of the business
• Details of the owner
• Analysis of the market
• Historic financial accounts
• Projected financial accounts

8
What do you do next

• Level of detail will depend on the size of the
  business and the size of the loan BUT
• You need to be sure the business can generate
  sufficient profit to repay the loan
• Other agencies e.g. Businesslink might be able to
  help produce the Business plan
• You might use a checklist to help assess the loan

9
Checklist

• C Character
• A Ability
• M Means
• P Purpose
• A Amount
• R Repayment
• I Insurance

10
Character

• This area is the same as we currently do with any
  face to face interaction with a personal lending
  member
• Do we know them
• Have they been recommended
• Do they have any adverse credit history
• Have they declared it
• Do we think they will want to repay

11
Ability

• What skills, knowledge and / or experience do
  they have of that type of business
• How easy would it be to gain the necessary skills
  and knowledge
• Do they have any skills, knowledge and / or
  experience of running a business
• Do they have any transferable skills
• Do they understand the pressures involved

12
Means

• Is this a new business if so-
• Do they have other money and / or resources to
  put in
• Do they have any other backers
• If it is an existing business-
• We need to see latest financial accounts
  including profit loss and balance sheet
• More recent management accounts

13
Purpose

• Why do they want the money-
• To buy fixed assets
• To buy stock etc.
• To cover them until they get paid
• It is important they and us are clear what we are
  lending the money to do more so than with a
  personal lending

14
Amount

• How much do they want
• Have they got a definite quote or calculation
• Is it too much
• Is it too little we dont want to be faced with
  a request for a bigger loan very quickly

15
Repayment

• How long do they want the loan over
• We need to see some kind of budget which
  indicates the business will be profitable
• Are the assumption behind the budget soundly
  based
• Could they repay more satisfactorily over a
  longer / shorter period
• Profit rarely equals cash will they have cash

16
Insurance

• Do we want to see life and / or sickness
  insurance
• Will what they have bought sell to repay
• Does the item need to be insured

17
How can we make it work

• Ensure you have the right skills
• Thorough assessment
• Regular contact
• Mentoring?
• Realistic charges
• Be aware of the potential default levels
• Monitor progress

18
General thoughts

• Dont go into this unless you know what you are
  doing
• Might be better to use experienced partners
• Loans are likely to be higher value
• Do you have enough money to lend
• What proportion of your lending should be to
  businesses
• Be clear which type of loan you are doing

19
Any questions
Eric Thompson 2 Shires Credit Union Queens
Buildings (Annex) Potter Street Worksop S80
2AE Tel [phone] Email manager_at_2shires.org.u
k