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ATIA 2007AFP Institute

Patti Lind

RESNA/NATTAP

January 24, 2007

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Goals• Affirm the connection between

policy and portfolio management

• Continue the discussion on sustainable loan program management

• Reframe underwriting practices for guarantors and direct lenders

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The Policy Conversation

When was your policy developed?

When did you last perform a

comprehensive review of your

policy?

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Policy Considerations

Policy impacts:

– Daily lending practices

– Ability to grow in the future

Developing supportive policy

– RESNA/NATTAP as a resource

– Other non-bank lenders

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Policy Considerations

Is it categorically organized?

– Mission and Program Description

– Products and Services

• Eligibility Criteria

• Summary of Loan Terms and Conditions

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Policy Considerations

Loan Review Process– Application Requirements– Fees– Loan Review and Approval– Underwriting Criteria– Loan Denials

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Policy Considerations

Loan Monitoring, Services, Collections– Responsibility of Bank (Guaranteed Loans)– Responsibility of AFP

Portfolio Management Policies– Capital Structure– Equity– Liquidity Reserves– Diversification– Reserving for Loan Loss– Risk Rating

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Underwriting Conversation

Who determines underwriting criteria?

What impacts underwriting criteria?1.

2.

3.

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Underwriting Notes

Credit History Current Debt to Income Current Monthly Income to Expenses

– Sources of income– Deposit relationships

Other Resources Appropriateness of AT

Q: Do specific AT loan categories require special underwriting?

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Portfolio Management Capital Structure

– Capitalization• Grants• Contributions• Net Earnings• Program Related Investments• Loans

– Equity• Net Worth Goal

– 25%

– Liquidity Reserves• Goal

– Minimum 10%

– Diversification• Sources of Capital

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Sustainability

Sustaining the OrganizationSustaining the Mission

– Assessing the Community We Serve– Aligning Loan Products/Services– Facilitating the Availability of Credit

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Maximizing Existing Loan Capital Diversification of New Loan Capital

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Sources of Loan Capital

Adequate Capitalization vs. Funding with Available VR $$

Equity Grants– Leverage other financing– Should require some client participation– May provide for different levels of

assistance depending on policy decisions: Iowa’s First Step Program

Loans– Microloans and other non-bank loans/grants– Traditional bank financing

• SBA Guarantees

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Tracking & Monitoring

Intense start-up monitoring– Month 1 = Weekly

• Use business plan as implementation guide

– Months 2 & 3 = Every 2 Weeks– Months 4 – 12 = Monthly

• Listen for TA needs• Track financial progress

Review for appropriate closure

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Resources & Supports

Identifying local service providers– The Abilities Fund links with microenterprise technical

and financial assistance providers– Online Services– Small Business Development Centers (SBA funded)– Independent service providers

Identifying financial resources– Banks– Non-banks: microloan programs, CDFI’s, local

consortiums– Guarantors: SBA – Ticket to Work– SSA PASS $$

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Self-Education Resources

Smart Steps to Smart ChoicesAuthor: David BangsUpstart Publishing

Financial Planning for Your Microenterprise

Authors: National Endowment for Financial Education