Nonprofit Blog

Commercial borrowers may pledge equipment, real property, investments and other assets as loan collateral. But the amount shown on a borrower’s balance sheet may not reflect an item’s current market value. A formal asset appraisal can help lenders understand how much an asset is worth today.

Many borrowers and lenders are frustrated with the complexity of financial reporting. So the Financial Accounting Standards Board (FASB) has launched a simplification initiative to reduce narrow, confusing areas of U.S. Generally Accepted Accounting Principles (GAAP). Here are some recent changes and works in progress.

Borrowers often pledge accounts receivable as loan collateral. But lenders shouldn’t necessarily take receivables at face value. Instead, lenders should conduct substantial due diligence to ensure that the book value of accounts receivable is accurate and up to date. If unattended, receivables may be plagued with unsettled accounts or, worse, fraud.

Many private business owners elect to operate as (or convert to) an S corporation to lower taxes. When lenders compare C corporations to S corporations, they may not obtain a complete, accurate picture — unless they understand the key differences and potential risks associated with each type of entity.

Fall is a convenient time of year to pay a visit to your borrowers’ facilities. Everyone is back from summer vacation and focused on business operations before the start of the hectic holiday season. Here’s why you can’t afford to not conduct physical site inspections on a regular basis — and what to look for.

People are often a business’s most valuable asset. Individuals build relationships with customers and possess in-depth knowledge of the company’s technology, trade secrets and strategic plans. Chances are that some of your borrowers rely so heavily on key people — owners, salespeople or executives — that a sudden, unexpected loss of those individuals would impair the company’s credit standing or ability to service debt. 

Many private business owners underestimate the importance of establishing strong business credit early on — and are surprised when they don’t qualify for affordable financing when they need it. Lenders are often the bearers of this bad news. Here’s a refresher on why it’s important for businesses to establish credit, what makes (or breaks) a business credit score and how borrowers can improve their ratings.

Establishing a tax domicile abroad — also known as a corporate inversion or expatriation — is a tax strategy that’s received a lot of media attention this year. The United States has the highest corporate tax rate in the industrialized world (35% before state and local taxes). And it’s the only country that taxes corporate profits earned outside its borders.

Related-party transactions played a major role in accounting scandals that happened at Enron and Tyco International. These scandals led to the Sarbanes-Oxley Act of 2002 and prompted auditors to take a closer look at related-party transactions and financial relationships. Such scandals aren’t unique to large public companies that engage in complex business transactions, however. In fact, they’re even more prevalent among small private companies without auditors and financial analysts to scrutinize their financial results.

Borrowers often pledge receivables as loan collateral. But recent studies show that many companies are collecting receivables slower than they did before the Great Recession. When you review a borrower’s year-end financial statements, ask whether management has taken these five simple steps to turn receivables into cash faster. Tighter collection procedures can expedite service debt and reduce working capital needs and bad debt write-offs.