Analysis of Athletequip Inc for Line of Credit from Commerce National Bank

PART A.
ATHLETEQUIP INC COPANY ANALYSIS.
INTRODUCTION.
The Atletequip Company was incorporated in 1979. Since then Third First State Bank in
Alhambara, California, have been the bankers of the company. However the situation has
changed in the last 6 months after the ownership of the bank changed. Due to change in
Bank’s management those who were familiar with functioning of Athletequip Company were
no longer working with bank. Further Third First State Bank was not in a position to finance
the additional credit requirements of Athletequip Company since this would exceed the legal
lending limits of the Bank.
Therefore the borrower has contacted Commerce National Bank In Alhambara and requested
for a line of credit amounting to $ 550000 for expansion of its production capacity.
Athleteuip has already forwarded the following information to the bank.
(i) Unaudited balance sheet and earnings statements of last 3 years,
(ii) Changes in Equity.
(iii) Credit report of the company and its principals.
(iv) Industry Comparisons.
The bank after doing analysis of the data provided by the Company will meet the top
management of the prospective borrower. CNB will have to decide on the following ;

(a) Whether loans should be sanctioned and on what terms and conditions.
(b) Is the quantum loan sought justified.
(c) What are the risks to which the bank and company will be exposed.
ANALYSIS.
For finding an answer to these questions, first of all the bank will carry out a 5C
analysis of the prospective borrower.
(a) Character
The following points are scrutinised under this head.
 Integrity of the borrowers based on their past repayment records.
 Education and experience in the related industry of the persons in charge
of management.
 Successful past track record in business.
 Past and pending court cases of the persons in charge of management.
The personal records of promoters and guarantors will also be reviewed.
(b) Capacity
The cash flow will be scrutinised for ascertaining whether the borrowers will be
able to repay the loan and interest after meeting all operating expenses.
(c) Condition.
Lender will evaluate the business environment in which the borrower and the
industry are currently operating.
(d) Capital.

Whether the owners will bringing in fresh capital. This will inspire confidence
with the bankers, since it indicates that the promoters have confidence in
managing their business profitably.
(e) Collateral.
This means the assets of the company and the personal assets provided by the
guarantor by way of security for repayment of loan.
(Sheppard T. n.d)
Analysis of 5Cs with reference to the borrower.
Character.
This is a very important factor for bankers. In exhibit 5A the external rating
agency has observed that apart from a slight deterioration in the financial results
of the company in the last financial year, the financial position of the company is
satisfactory. However the trends of the current financial year, if it is maintained,
shows that the turnover of the company will again increase this year. The report
concludes by saying that the account is well regarded.
The promoters of the company do not have any past criminal records. The
company has also never defaulted in its payments in the past.
The promoters are also well qualified and have long years of experience in this
line of business.
So the first condition is satisfied.
Capacity