Appraisals & Valuations
What are the 3 valuation approaches?
Comparison Approach
Income Capitalization
Cost Approach
What are the 5 C's of Credit?
Capacity
Capital
Collateral
Character
Conditions
What is Return on Assets?
Gives an idea of how effective the company is in converting the money it invests into net income. The higher the ROA number, the better.
True or False:
To be eligible for a 504 loan, the business must operate as a non-profit company in the US or its possessions.
False!!
The business must operate as a for-profit
Why did the pig stop sunbathing?
He was bacon in the sun!
What is Fee Simple?
As if the Real Estate is Owner Occupied
What is the primary source of repayment ?
Cashflow
Why is Debt to Net Worth ratio important in our underwriting?
It measures the company leverage / risk. To gauge how much of a company's assets are financed by debt which is an indication of the financial health of a company.
What is SBA most common loan program and the maximum $ amount?
SBA 7a
_____ occurs when you sell an asset for more than what you originally paid for it.
Capital Gain
What is an uncommon method based on ownership rights?
Leasehold Interest - as if the real estate value is not valued but the tenant owns the building or rights to the property within the terms of the lease.
_______ looks to see if the Owner's have sufficient equity (investment of their own Cash) aka "Skin in the Game"
Capital
How to calculate Current Ratio and how is it important?
Current ratio = current assets / current liabilities
-Evaluates a company's ability to pay its short-term liabilities with its current assets. The higher your current ratio is, the more likely you will be able to pay off your financial obligations in the near future
What are 504 loans?
The CDC/504 Loan Program provides long-term, fixed rate financing for major fixed assets that promote business growth and job creation.
Which is faster, hot or cold?
Hot, because you can catch cold.
What is Leased Fee?
Evaluating the property as if the Real Estate is being leased out.
This is based heavily on the terms of the established lease and uses a Capitalization (CAP) Rate as a basis for the investor’s expected rate of return.
Why is Character important yet difficult to "measure" in lending?
Essentially comes down to your "Gut Feeling" about the borrower.
It is intangible, nothing to measure
DSCR- Debt Service Coverage Ratio is can be manipulated because it's directly influenced by _____ and _____
Interest Rate and Amortization
504 loan cannot be use for...
- Working Capital or inventory
- Consolidating, repaying or refinancing debt
- Speculation or investment in rental real estate
Can February march?
NO but April may
What is CAP rate and how is it calculated?
It is an indicated rate of return that is expected to be generated on a Real Estate Investment property.
Divide the NOI (Net Operating Income) by the property asset value.
What is Conditions in the 5 C's?
•Overall Economic Conditions
•Specific Market of the Borrower
*Loan Terms
This metric disregards many other assumptions and can't be easily manipulated.
Debt Yield
SBA Express loans can help business owners maintain—or expand—operations on a more accelerated timeline than other SBA loans.
What are some pros and cons of SBA Express loans?
Pros:
-Faster turn around
-Easier Application Process
-Borrowers can choose between term loans and lines of credit
Cons:
-Difficult to meet qualifications
-Higher Interest Rates
-Lenders may still take a long time to process / fund
True or False:
A BUSINESS’S CASH FLOW AND ITS PROFIT ARE NOT THE SAME THING
TRUE
Difference: Cash flow refers to the money that flows in and out of your business. Profit is the money you have after deducting your business expenses from overall revenue.
A business may be profitable and still experience negative cash flow or lose money and experience positive cash flow