Finance & AccountingFree
Annual Bank Credit Review Prep Brief
The year restated in credit terms, the availability your commitment cannot reach, and the one concession worth asking for, priced before you walk in.
River's credit review brief reads your last four quarters and the agreement. It restates the year in the arithmetic the credit file runs on, not the arithmetic your board pack runs on. What comes back is a review document in credit terms and a sheet that walks the collateral down to the number you can actually draw. With it come the questions the relationship manager will open with, an answer to each, and three slides. The ask arrives split into the part the agreement already owes you and the part somebody has to sign.
Every preparation guide on this query tells you to bring current financials and rehearse the story. Not one of them computes availability. Ardsley Provision Company in the worked example holds an 18,000,000 revolver, clears every ratio the bank tests, and can draw 1,321,604. Of that commitment, 8,228,396 sits beyond the reach of its own borrowing base. It pays 20,571 a year in unused line fees on money it has no mechanism to borrow. Ratios are the part of a review pack that is already fine.
Written for the CFO or owner who gets one meeting a year to move their cost of capital, and for the controller who assembles the pack. It runs on the terms the covenant definition extractor resolved and the quarterly picture from the covenant headroom forecast. Certificates land through the lender reporting package, the working capital story comes out of the cash conversion cycle analysis, and a certificate delivered late is usually a close speed problem.
Every ratio passes and the line is still shut
A bank asks three quantitative questions: how levered, how well covered, and can this repay. Ardsley clears all three. Leverage of 2.18 times sits nowhere near the six times that raises concerns for most industries. Coverage of 1.41 times carries 455,400 of cash above a 1.20 covenant. Cash flow retires half the debt in 3.08 years, inside the five to seven year window the agencies treat as adequate repayment capacity. None of that is what the meeting turns on.
Ardsley sells on seven day terms, because the food industry usually requires payment in seven to 10 days, and the agreement disqualifies an account at three times terms. That line falls at 21 days past due, not 90. Its own aging report buckets at 30, so the lender's cut sits inside the first column where nobody looks. Four disputed invoices worth 1,120,000 sit past it, and cross-aging drags 1,510,000 of current balances from those same customers out with them.
Its largest customer is 26.0 percent of receivables against a 20 percent cap, so 1,922,000 of good paper is excluded. The obvious ask is a higher cap, worth 731,952 of availability. The regulator's own handbook names a second route, which is to reduce the percentage advanced against a concentration instead of excluding it. Advancing half rate against the whole excess is worth 795,708, leaves the cap the examiner reads untouched, and sounds like the smaller request. It is worth 63,756 more.
How it works
Add the reporting
Four quarters of certificates plus the aging and inventory detail sitting behind each one of them.
Add the agreement
The credit agreement and its amendments, where the eligibility rules and the pricing grid actually live.
River works the base
Collateral walks down to availability, and every exclusion resolves to a customer you can name.
Take the ask
Three slides, the priced ask, and the answer to each question before the relationship manager asks it.
What you get
- The year restated in the credit file's arithmetic beside the version your board pack tells
- A borrowing base walk from gross collateral to the number you can draw tomorrow morning
- Ineligibles resolved to named customers, with the ones you can clear yourself marked
- The pricing grid level your closing leverage earned, and what claiming it is worth
- Each version of the ask priced, including what it costs the bank to say yes
- Three slides and the questions they will open with, each one answered in advance
Common questions
How is this different from bringing updated financials?
Updated financials answer the question the bank has already answered. It has your statements. What it has not told you is that 8,228,396 of your commitment is unreachable. Nor that four disputed invoices are suppressing 1,510,000 of eligible receivables. Nor which of two concessions is cheaper for it to grant. Those are the three things worth walking in with.
What does restating the year in credit terms change?
It changes which facts are load bearing. A credit file measures repayment capacity, then falls back to secondary sources when that shows a well-defined weakness. So maintenance capex, cash taxes and owner distributions are debt service, and growth in revenue is context. Ardsley's distributions consume 30.2 percent of the cash that would otherwise retire debt.
Why does availability matter more than the limit?
Because the limit is a ceiling and the borrowing base is the floor you actually stand on. Ardsley's base supports 9,771,604 against an 18,000,000 commitment. Raising the commitment by 5,000,000 produces no availability at all and costs 12,500 a year in unused line fees. It is the most commonly requested and least useful item on the agenda.
What is the grid step you say I already own?
Most agreements price off leverage. One filed facility runs three levels 25 basis points apart, resetting when the lender receives the compliance certificate. While a certificate is undelivered, the lender may hold the most expensive level. Ardsley closed at 2.18 times, which is worth 21,500 a year, and it filed three of four certificates late.
Which version of the ask should I actually make?
The one that is cheapest for the credit committee to approve and worth the most to you, which is rarely the same as the loudest one. Ardsley trades 6,000,000 of commitment it cannot reach, which frees the bank's exposure and saves 15,000 a year, for collateral treatment on the concentration worth 795,708 of availability.
What if most of the gap is my own housekeeping?
Then you have a better meeting, and it is the usual answer. Of the 2,045,988 of availability Ardsley recovers, 61.1 percent needs nobody's permission. Work it before the review rather than after, and watch the recovered availability weekly through the 13 week cash flow forecast so the next ask starts from a defended number. Housekeeping is also most of what a lender's own document request is asking about.
Annual Bank Credit Review Prep Brief
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