How to Evaluate a Borrower’s Ability to Survive Inflation and Recession

As borrowers and lenders work through the business cycle, borrowers’ credit needs change, so lenders must be ready to recognize the changes and accommodate their clients’ requirements, and credit approvers must be prepared to evaluate and adjudicate the impact of these changes on underwriting, approval, and credit risk management.

What complicates survival in this current economic situation is the combination of inflation and looming recession.  Business cycles are inevitable, and bankers  must understand borrowers’ funding needs through a cycles four phases—early expansion, late expansion, early contraction, and late contraction—as well as how to identify and evaluate clients’ relative vulnerability to both inflation and recession.

This session offers some tips on evaluating survivability—what level of sales will generate a profit, how fast can revenues grow without having to borrow, how to reduce costs—that both lenders and owners can consider in setting their own strategies for fighting inflation and preparing for recession.

Learning Objectives

• Understand how an enterprise’s borrowing needs change over the business cycle
• Diagnose the strength of a company’s financial condition and performance
• Determine an organization’s ability to survive over a business cycle and defend itself against inflation

Topics Covered:

• Defining the business cycle and its four phases
• Understanding how borrowers’ credit needs change over four phases of business cycle
• Identifying industries most vulnerable to recession and those industries less susceptible to recession
• Reviewing recession checklist to diagnose and improve cyclical commercial loan portfolio management
• Evaluating a firm’s survivability and recession-proofing with techniques such as
  • Break-even sales calculation
  • Nominal sales vs real sales
  • Operating leverage
  • Sustainable growth rate
  • Fixed and variable expenses
  • Profitability and productivity