Site Navigation

Credit Risk Assessment

Two years, preferably three years, of accountant prepared financial statements and tax returns are required for the borrowing entity and all guarantors.

The credit risk assessment of commercial lending transactions includes the analysis of three key areas of risk:

  1. Financial Risk
  2. Management Risk
  3. Industry Risk

Financial Risk
  • Sales: product mix, pricing policies, targets
  • Accounts receivable: terms of trade, collection process, client mix, aged listing
  • Inventory: terms of trade, seasonal issues, availability of materials, discounts
  • Accounts payable: terms of trade, client mix, aged listing
  • Working capital: cash reserves, overdraft limit utilisation
  • Equity: dividend policy, investment by shareholders/directors and loans to them, contingent liabilities, off balance sheet items, intangible assets
  • Profit record: margins, operating expenses, financing expenses
  • Asset quality: asset register, capital expenditure requirements, insurance, realisation values
  • Historic cash flow: level of debt amortisation, effect of sales growth and changes to margins
  • Repayment capacity: reliability of income, growth projections, capital expenditure requirements

Management Risk       
  • Skill level and integrity: management skills, production of timely and reliable data, commitment to meet obligations
  • Succession planning: depth and breadth to management, business plan
  • Repayment history: use of credit facilities, conduct of loan accounts

Industry Risk       
  • Bargaining power of customers and suppliers: make up of client base, reliance on suppliers
  • Level of competition: market forces


Footer Information

Credit Ombudsman Logo MFAA LogoPhoneIcon 1300 88 66 11