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March 5, 2017 <br /> Patrick Brama <br /> Page Two <br /> I want to emphasize that the primary source of repayment for a business loan is the cash flow generated <br /> by the operations of the business. When the request is for an owner-occupied commercial mortgage or <br /> equipment loan from a local revolving loan fund, it is important to analyze the company's tax returns <br /> and financial statements to determine if the cash flow is sufficient to support the additional monthly <br /> payments. This step in the analytical process has been completed. Historical global cash flow for the <br /> American Print and Digital loan request is sufficient for the business to service the debt associated with <br /> the proposed project with a ratio of 1.77 for FYE 2015. Trends are positive with global cash flow <br /> improving for each of the last three fiscal years. <br /> Collateral <br /> As discussed earlier, commercial lenders know that that it is important to identify a "secondary source <br /> of repayment" and obtain all the collateral you can. Most lenders believe that there should be more <br /> than one source of repayment so that should there be a delay or a problem the repayment commitment <br /> can still be kept. <br /> The collateral that has been proposed forthe Ramsey RLF loan related to the American Print and Digital <br /> project is real estate and equipment. The loan would be secured by a lien position junior to The Bank of <br /> Elk River, Minnesota Business Finance and the VS Small Business Administration. Commercial real <br /> estate appraisals for this project have now been completed. A collateral analysis has been completed <br /> and is attached for your review. Based on the collateral analysis the collateral is insufficient to achieve <br /> the EDA approved 95%"loan to value" ratio when all loans are taken into account. To help mitigate this <br /> deficiency Ramsey requested that additional collateral be offered. Based on the initial credit analysis <br /> collateral existed in the personal residence of the borrower. The borrower has since rejected this <br /> condition and has subsequently offered additional equipment to secure the loan. A list of the <br /> equipment and the corresponding estimated market value is attached. A secured position in this <br /> collateral will require a release by The Bank of Elk River. Staff has been informed that The Bank of Elk <br /> River has agreed to do so. Assuming that the estimated market values are correct and that the Bank of <br /> Elk River agrees to the release, collateral should be more than sufficient to provide support for the loan <br /> from the Ramsey RLF as Ramsey will have a first lien position on the collateral. <br />