How many times have you approved and made available a Revolving Line of Credit for a prospect or customer who ultimately borrows up to the maximum credit limit and keeps the balance at that point all year. When this occurs, it is often referred to as an "Evergreen", "Floored-In" or "Permanent" Line of Credit and is often frustrating to bankers. In order to be repaid, bankers must convert all or a portion of the line into a term loan and choosing the right amount to convert is a guessing game in many cases.
Lines of Credit should be used to fund short term obligations such as payments to suppliers, payroll, taxes and other immediate operational requirements until the current assets are converted to cash. The conversion of assets to cash, known as the Asset Conversion Cycle or the Operating Cycle, is key to understanding "Why That Revolving Line of Credit is not Revolving".Covered Topics:
This session will examine in detail what causes a borrower's short term Line of Credit to become permanent working capital. Some of the reasons may be intentional while others are unintentional. This session will help you to distinguish between the two and provide a deeper understanding of the impact and interrelationship of sales, current assets, profits, cash flow and creditors on the Line of Credit.
Specifically, the session will address the following issues:
- How to educate borrowers on the proper use of a Line of Credit.
- How to determine the proper amount of a Line of Credit.
- What causes a Line of Credit to become permanent working capital.
- Analysis of the Asset Conversion Cycle to determine the impact on borrowings under the Line of Credit and to properly structure credit facilities.
- Analysis of accounts receivable and inventory to determine collectability and quality.
- Methods to determine how much of the Line of Credit should be converted to a term loan at maturity.
After attending this session, the participant will be able to notice the warning signs of a Line of Credit that is rapidly becoming permanent working capital and the analysis required to avoid this from occurring. The participants will also have an enhanced understanding of how to structure short term credit facilities to achieve maximum safety and efficiency for the borrower and the bank.
Who Should Attend:
- Senior Loan Officers
- Senior Credit Officers
- Commercial Loan Officers
- Credit Analysts
- Branch Managers
- Loan Review Personnel
- Internal Auditors
Jeffery W. Johnson started his career with SunTrust Bank in Atlanta as a Management Trainee and progressed to Vice President and Senior Lender of SouthTrust Bank and Senior Vice President and Commercial Banking Division Manager for Citizens Trust Bank of Atlanta.
Most of his career has been spent in Credit Administration, Lending, Business Development, Loan Review, Management and Training &Development. He has managed loan portfolios representing a cross section of loan types including: Large Corporate, High Net Worth Individual, Middle Market Companies, Small Business, Real Estate and Non-Profit Organizations.
Mr. Johnson is now a training professional in the financial industry by leading various seminars covering important topics relating to issues in financial institutions. He teaches actively for fifteen state banking associations in the United States, Risk Management Association (RMA) and individual financial institutions nationwide. He co-authored a training course entitled "Lending to Service and Other Professional Organizations" for RMA in 2001.
Mr. Johnson earned a B.A. Degree in Accounting from Morehouse College in Atlanta; a MBA in Finance from John Carroll University in University Heights, Ohio; Banking diploma from Prochnow School of Banking at the University of Wisconsin and a Graduate Certificate in Bank Management from the Wharton School of Business at the University of Pennsylvania.