Commercial Lending: Are Your Borrowers Testing for Goodwill Impairment?

  • July 9, 2010

When a company is sold for more than net book value, this results in an accounting concept known as goodwill. If you are relying on reviewed or audited financial statements from borrowers, you should be aware of their obligation to test for goodwill impairment. Once a year, these companies are required to screen for potential impairment, measure the amount of impairment (if any exists), and adjust the value of intangible assets (like goodwill) to reflect current economic realities. If testing reveals that the value of goodwill on the borrower’s books has been impaired (or, in other words, has declined), the company is required to write off this amount to its current fair market value. Note that the value of goodwill can only be written down, not up.

Commercial Lending: Monitoring Government Guaranteed Loans

  • July 9, 2010

A primary cause of concern among many banks today is the high rate of default on government agency guaranteed small business loans like Small Business Administration (SBA), Farm Services Administration (FSA) and Farmers Home Administration (FMHA) loans. In the good ’ol days, when these loans hit 90 days past due, the bank simply filed a claim, sent the government agency the credit file and the agency took it from there. Now, the agencies expect lenders to work out the credits themselves before filing claims. And for claims filed, the agencies expect documented evidence of lender due diligence in every aspect of loan origination and monitoring before they will honor their guarantee.

Commercial Lending: Managing and Mitigating Portfolio Risk

  • July 9, 2010

What a difference time makes. Three years ago, most banks were enjoying low levels of past-due accounts, criticized/classified loans and losses in their small business portfolios. Then came the recession and the financial crisis, which led to record losses and the subsequent failure of many banks.

Commercial Lending: Debt Forgiveness and Foreclosure Tax Consequences

  • May 3, 2010

Do you realize that forgiveness of debt as part of a loan workout plan may be a taxable event for borrowers? If not, your borrowers could be in for a very unwelcome surprise from the IRS. For example, suppose you accept $300,000 from a borrower as satisfaction of a $500,000 debt. The IRS takes the position that the $200,000 difference is ordinary taxable income to the borrower, and you are required to send the borrower a Form 1099 stating this.

Commercial Lending: How to Spot “The Living Dead”

  • April 30, 2010

Zombies have long been popular among a certain segment of moviegoers, but what does this have to do with commercial lending? The present state of the economy and the small business segment, in particular, is starting to resemble a modern-day zombieland. There are a number of businesses today that can best be described as “the living dead”: They managed to survive the recession by aggressively managing receivables and inventory and delaying replacement capital expenditures, but are destined to fail once the recovery starts kicking into gear.

Commercial Lending: Deferred Tax Assets. The Good and the Bad.

  • April 28, 2010

When examining potential borrowers’ financial statements, some lenders are beginning to see something that’s unfamiliar to many of them: deferred tax assets. These are created as a result of timing differences that occur between book and taxable income for things such as depreciation and investment gains and losses. With more companies experiencing losses the past couple of years due to the recession, many are setting up deferred tax assets associated with their operating loss carryforwards in their financial statements. And there are many others that aren’t recording these deferred tax assets, but should be.

Commercial Lending…More Lessons: Equity and Contingent Liabilities

  • October 26, 2009

In addition to those detailed in our article, Commercial Lending...After The Crisis: Back To Basics, here are two more hard lessons learned from the financial crisis:

Commercial Lending…After The Crisis: Back To Basics

  • October 1, 2009

Now that we have digested the fact that most banks' loan portfolios are weaker today than they were two years ago, it's a good time to review a few of the basics of commercial lending.

Options For Distressed Debt

  • December 15, 2008

One result at the credit crisis that has rocked this nation's financial system over the past year has been an abundance of distressed debt for sale in the commercial marketplace. Well, one man's trash may indeed be another man's treasure, since a growing number of firms are interested in purchasing this debt.