Credit Risk Management

Business risks

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This entails identifying both macro- and micro-economic factors, and

the opportunities/risks for the business in a specific market, and then

address each component with a solution to effect successful entry into

the market. This will set the strategy for the business and an outline for

the next stage which is practical planning.

This requires management to undertake a process of structured analysis

similar to that considered in this chapter.

Managers and lenders obviously have different viewpoints in how they

perceive risk and reward.

Business plan

A comprehensive business plan will contain all the elements needed for

a prudent credit analysis:

■ Nature of the business.

■ Strategies for the future.

■ Industry, market and products – existing and proposed.

Management

Management of any business irrespective of its size or nature must have

a strategy and a plan to achieve the goals of the strategy:

■ Resources – staffing, assets, organizational structure.

■ Financial performance – historic and current balance sheet, profit

and loss account, sources and uses of funds, working capital and cash-

flow management.

■ Financial forecasts – Based upon the assumptions made in the bal-

ance sheet, profit and loss account, sources and uses of funds, work-

ing capital and cash-flow forecasts identifying the type and nature of

financing required.

Without a longer-term view, this should raise a significant question for

the analyst about the quality of the management, its expertise and