Credit College Overview

Credit College Overview The Credit College contains five courses that address and explore credit analysis in the fields of commercial business and commercial real estate. Since an understanding of accounting basics is necessary to master the analytical steps in the credit decision process, the Credit College includes an accounting refresher course as well. The Commercial Business, Commercial Real Estate and Using Federal Tax Returns for Ratio and Cash Flow Analysis courses are delivered via eight 90 minute live webcast sessions over an eight week period. 8.0 Connections for Members $2,000 for non Members Credit Basics is delivered via four 90 minute live webcast sessions over a four week period. 4.0 Connections for Members $1,000 for non Members The Accounting Essentials course is delivered via four 90 minute live webcast sessions over a four week period. Credit College participants follow these simple steps: 4.0 Connections for Members $1,000 for non Members Register for a Credit College course at least one day before it begins. For each session, download and review the session presentation slides, background reading materials, exercise, poll questions and case materials. Follow each presentation at its appointed time via desk top and conference line. Submit questions to be addressed by the webcast presenter in the question and answer period during and at the end of each session. Review the written solutions for the exercise available at the close of the session. Take the optional online multiple choice review quiz for the session. Submit the optional final multiple choice question exam at the end of the course.

Commercial Business Underwriting Commercial Business Underwriting steps through the entire analytical process for a commercial credit decision. At the end of the eight online sessions 12 hours of instruction participants will know precisely how to sort through company information, analyze both soft and hard data, and present their conclusions and recommendations in a generic credit write-up format. This Credit College Course is directed toward inexperienced analysts and lenders, although any analyst or lender may benefit if he or she feels a refresher would be helpful. Commercial Business Underwriting is delivered via eight 90-minute webcasts over an eight-week period. Each session includes a multi-step exercise, background reading materials, and depending on the session focus company financial statements, and personal income tax returns for the guarantor. In addition, participants may complete a brief online review quiz following each session as well as access and complete, at their option, a 90-minute online final exam. Each Session is 1.0 Connections for Members or $250 for non Members. Session 1: Analytical Decision Tree and the Credit Write-Up Identifies the four essential issues that must be addressed in every credit write-up, reviews the sequential analytical steps in the credit decision process, reviews the financial statements for a prospective borrower, reviews interview comments by a second prospective borrower, explores the personal characteristics necessary for business success, and examines the generic sources of competitive advantage for a business. Session 2: Financial Statement Review and Ratio Analysis Reviews the fundamental difference between description and analysis in management assessment and interpretation, reviews the financial statements for the flooring company to identify obvious risk issues, reviews and examines the five primary business organizations and identifies key differences and similarities, reviews the computation and assessment of key financial ratios, examines the importance of the Business Drivers in establishing a borrower s risk profile, and explores the necessary adjustments to reported EBITDA and net profit to accommodate distributions, withdrawals, and loans to owners in establishing a borrower s ability to meet the first necessary condition for business success. Session 3: Cash Flow Analysis and Borrowing Causes Reviews the fundamental differences between description and analysis in ratio assessment and interpretation, reviews the construction of the Uniform Credit Analysis (UCA) cash flow statement, compares the messages and information provided by traditional cash flow and the UCA cash flow statement, explores the use of the UCA cash flow statement in identifying borrowing causes, repayment sources, and likely risks to repayment sources, as well as examines the role of the UCA cash flow statement in establishing a borrower s ability to meet the second necessary condition for business success.

Credit College: Commercial Business Underwriting Session 4: Management Assessment, Projected Cash Flow, and the First Way Out Reviews the fundamental differences between description and analysis in cash flow assessment and interpretation, examines the management capabilities essential for business success, explores the competitive forces that will likely impact key Business Drivers, examines the methodology for shaping Business Driver values for most likely and worst case scenarios in the projection period, and reviews the use of the resulting projections and UCA cash flow statement in identifying borrowing causes, repayment sources, likely risks to repayment sources, and whether the borrower will meet both the first and second necessary conditions for business success. Session 5: Guarantor Analysis and the Second Way Out Reviews the fundamental differences between description and analysis in projected profitability and cash flow assessment and interpretation, reviews and explores the process for constructing a personal cash flow statement from personal financial statement and personal income tax return information, estimates the amount of personal cash flow available to support business debt service in good times and in a cash flow crisis, estimates the amount of ready cash support from the guarantor in a business cash flow crisis, and explores the benefits and limitations of applying global cash flow techniques in reaching a credit decision. Session 6: Non Financial Red Flags and Performance Implications Reviews the fundamental differences between description and analysis in guarantor assessment and interpretation, explores the distinction between financial and non-financial red flags, reviews the significance of numerous non-financial red flags that are frequently encountered, examines specific financial statement information, borrower background information, and borrower comments to identify non-financial red flags and trace their existing and potential impact on borrowing causes, cash sources of repayment, and risks to cash repayment sources, and explores possible mitigants that may be put in place to limit the risks from non-financial red flags. Session 7: Identifying and Mitigating Repayment Risks Reviews the fundamental differences between description and analysis in non-financial red flag assessment and interpretation, reviews and examines a series of loan covenant and loan structure considerations; explores the construction and application of a critical profitability loan covenant, explores the construction and use of a critical cash flow loan covenant; reviews and identifies all relevant risks to cash sources of repayment for two borrowers; and explores possible loan covenants that may be imposed to effectively mitigate some or all of the risks. Session 8: The Credit Write-Up Again Reviews the fundamental differences between description and analysis in stating the purpose of loan covenants, reviews and examines the projected borrowing causes, likely cash sources of repayment, risks to the cash repayment sources, and practical mitigants to repayment risks for two borrowers, explores the most persuasive arguments in support of the respective loan requests and the most persuasive arguments opposed to the loan requests; reviews the analytical decision process, and reviews the four essential analytical issues that must be addressed in every credit write-up in bringing closure to this Credit College Course.

Commercial Real Estate Underwriting Commercial Real Estate Underwriting steps through the entire analytical process for a commercial real estate credit decision in the analytical sequence emphasized by the regulators in their October 30, 2009 policy statement. At the end of the eight online sessions 12 hours of instruction participants will know precisely how to assess the borrower, the guarantor, and the property including the application and use of global cash flow techniques and present their conclusions and recommendations in a generic credit write-up format. This Credit College Course is directed toward inexperienced analysts and lenders, although any analyst or lender may benefit if he or she feels a refresher would be helpful. Commercial Real Estate Underwriting is delivered via eight 90-minute webcasts over an eightweek period. Each session includes a multi-step exercise, background reading materials, and depending on the session focus company financial statements and personal income tax returns for the guarantor. In addition participants may complete a brief online review quiz following each session, as well as access and complete, at their option, a 90-minute online final exam. Each Session is 1.0 Connections for Members or $250 for non Members. Session 1: The Credit Write-Up and the CRE Analytical Process Examines the four essential issues that must be addressed in every credit write-up, reviews a recent regulatory policy statement about the sequence of analysis for a commercial real estate loan request, reviews the sequential analytical steps in the credit decision process, reviews the financial statements for a prospective borrower to identify obvious risk issues, examines the relevant similarities and differences between and among the common types of business organizations, and examines the purpose and key elements of a single purpose entity (SPE). Session 2: Ratios, Borrower Cash Flow, and the First Way Out Reviews the fundamental difference between description and analysis in financial statement review, reviews the computation and assessment of key financial ratios in suggesting borrowing causes and likely repayment sources, reviews the computation process and assessment of two popular cash flow measures net income + depreciation and the Uniform Credit Analysis (UCA) cash flow statement in identifying and verifying borrowing causes and cash repayment sources, and explores the necessary adjustments to reported net profit to accommodate distributions, withdrawals, and loans to owners in establishing a borrower s ability to meet the two necessary conditions for business success. Session 3: Guarantor Analysis, Global Cash Flow, and the Second Way Out Reviews the fundamental differences between description and analysis in profitability and cash flow assessment and interpretation, reviews and explores the process for constructing a personal cash flow statement from personal financial statement and personal income tax return information, estimates the amount of personal cash flow available to support business debt service in good times and in a cash flow crisis, estimates the amount of ready cash support from the guarantor in a business cash flow crisis, and explores the process, benefits, and limitations of applying global cash flow in reaching a credit decision.

Credit College: Commercial Real Estate Underwriting Session 4: The Appraisal Report and Approaches to Market Value Reviews the fundamental differences between description and analysis in guarantor and global cash flow assessment, examines the information necessary to estimate property market value, cash flow, asset quality, access to the property and its stream of income in case of default, focuses on the sole purpose of the appraisal report, reviews the three standard approaches to establishing market value with specific emphasis on the sales comparison approach, the validity of information for comparable properties, the role of appraiser adjustments, and the implications under the sales comparison approach for the cap rate. Session 5: The Income Capitalization Approach and the Cap Rate Reviews the fundamental differences between description and analysis in assessing the sales comparison approach, reviews the concepts underlying the income capitalization approach to value, examines the components and considerations that shape and determine a capitalization rate, reviews the rationale and limitations in using stabilized values for the key valuation assumptions under the income capitalization approach and the resulting implications for market value, property cash flow, financing, and debt service capability, and explores the benefits and limitations of using the income capitalization approach in estimating market value for an income producing property. Session 6: Underwriting Standards, Actual vs. Stabilized NOI, and Breakeven Analysis Reviews the fundamental differences between description and analysis in assessing the income capitalization approach to value, explores the application of a lender s underwriting guidelines to a proposed financing under both stabilized assumptions for net operating income and actual net operating income, reviews break-even computations and use in estimating an income producing property s prospects for withstanding market disruptions, particularly a disruption in the form of an increase in its vacancy rate, and explores the considerations that determine an investor s decision to purchase an income producing property, given alternative investment opportunities. Session 7: Management Assessment, Competitive Forces, and Projected Performance Reviews the fundamental differences between description and analysis in the application of underwriting standards, examines the management capabilities essential for business success, explores the competitive forces that will likely impact key Business Drivers, examines the methodology for shaping Business Driver values for a most likely projection scenario, which includes the income producing property s revenues and expenses, reviews the use of the resulting projections and UCA cash flow statement in identifying borrowing causes and likely repayment sources, and explores a range of common non-financial red flags that may emerge and impact the borrower s operating performance in the coming period. Session 8: Repayment Risks, Covenants, and the Credit Write-Up Revisited Reviews the fundamental differences between description and analysis in assessing projections, examines documentation relevant to the subject property, reviews and examines the projected borrowing causes, likely cash sources of repayment, risks to the cash repayment sources, and practical mitigants to repayment risks for the borrower, explores the most persuasive arguments in support of and opposed to the loan request, examines the impact on the credit decision if the owners were to create a special purpose entity (SPE) to house the proposed acquisition, and emphasizes the four essential analytical issues that must be addressed in every credit write-up in bringing closure to this Credit College Course.

Using Federal Tax Returns for Ratio and Cash Flow Analysis Using Federal Tax Returns for Ratio and Cash Flow Analysis explores in detail a) the form and content of all business income tax returns, b) the use of Schedules K-1 in establishing the income tax obligation of owners and partners of Subchapter S corporations, partnerships, and limited liability companies and the flow of cash from those companies to owners and partners, c) the role of the Section 179 Deduction in setting the income tax obligation of Subchapter C corporations and all pass-through entities, as well as the impact of the deduction on key performance ratios and cash flow measures for all business organizations, d) the construction, use, and limitations of personal cash flow statements in assessing probable guarantor cash support in a crisis, e) the essential role and use of Schedule M-1 in constructing an accrual income statement from business income tax return information, f) the construction and use of key performance ratios from an accrual income statement created from business income tax return information and accrual balance sheet information reported in Schedule L, g) the construction and use of the Uniform Credit Analysis (UCA) cash statement from an accrual income statement created from business income tax return information and accrual balance sheet information reported in Schedule L, and h) the process of creating an accrual income statement from information in cash-based business income tax returns for follow-on use with accrual balance sheet information in Schedule L in constructing key performance ratios and cash flow measures. This Credit College Course is directed toward inexperienced analysts and lenders, although any analyst or lender may benefit if he or she feels a refresher would be helpful. Using Federal Tax Returns for Ratio and Cash Flow Analysis is delivered via eight 90-minute webcasts over an eight-week period. Each session includes a multi-step exercise, background reading, and case materials for a variety of business organizations and guarantors. In addition participants may complete a brief online review quiz following each session, as well as access and complete, at their option, a 90-minute online final exam. Each Session is 1.0 Connections for Members or $250 for non Members. Session 1: Form, Structure, and Content of Business Income Tax Returns This first session in this Credit College Course examines the major differences between Subchapter C corporations, Subchapter S corporations, partnerships and limited liability companies, and sole proprietorships and how those differences flow through to the associated business income tax returns. It reviews the purpose of business income tax returns by type of business organization and explores the role of Schedule K, Schedule K-1, Schedule L, and Schedule M-1. Further, the session identifies the schedule and line number that capture net taxable income on each set of business income tax returns, as well as identifies, if available, the amount of federal income tax due and payable on taxable business income. In addition, the session addresses the way income tax regulations determine the channels and mechanisms for providing compensation to business owners. Finally, this first session examines the role and importance of dividends, distributions, and withdrawals in assessing borrower risk.

Using Federal Tax Returns for Ratio and Cash Flow Analysis Session 2: Section 179 Deduction and Impact on Taxable Income The second session in this Credit College Course a 90 minute live webcast examines the purpose of the Section 179 deduction, its conditions and limitations for use, and its role in establishing taxable business income for each of the standard business organizations. It identifies the impact, if any, of the Section 179 deduction on a borrower s accrual financial statements, and it explores the use and application of the Section 179 deduction on the personal income tax obligations of owners and partners of Subchapter S corporations, partnerships, limited liability companies, and sole proprietorships. In addition, the webcast examines the impact of the Section 179 deduction on borrower performance ratios and cash flow statements including the Uniform Credit Analysis (UCA) cash flow statement computed from information in the business income tax returns as well as from information in the accrual financial statements. Session 3: Schedules K-1 Information Content and Use The third session in this Credit College Course a 90 minute live webcast reviews the information content captured in Part I on the schedules. It examines the information provided in Part II with specific attention to amounts recorded for a) non-recourse financing liabilities, b) qualified non-recourse financing, and c) recourse financing for a partnership or limited liability company. In addition, the webcast explores the similarities and differences between the two Schedules K-1 in terms of information requirements and their relevance to analysis, tracks the migration from data entered in Part III of both schedules to specific locations on the personal income tax returns, and identifies cash and non-cash amounts recorded in Part III. In addition, it provides an in-depth review of the Schedule K-1 (Form 1120S) for a Subchapter S corporation and the Schedule K-1 (Form 1065) for a partnership or limited liability company. Session 4: Form, Structure, and Content of Personal Income Tax Returns The fourth session in this Credit College Course a 90 minute live webcast reviews the fundamental purpose of personal income tax returns. It examines the information content and cash or non cash amounts reported on Schedules A, B, C, D, E and appropriate Schedules K-1. It identifies the relationship between business income tax returns and personal income tax revenue and expenses for owners and partners of passthrough entities. Further, the webcast illustrates the step-by-step construction of a personal cash flow statement and examines whether a personal cash flow surplus or a guarantor s liquid personal assets is the best estimate of guarantor cash support in a crisis. Session 5: Schedule M-1 Reconciliation of Book and Net Taxable Income The fifth session in this Credit College Course a 90 minute live webcast explores in detail the information captured in Schedule M-1 and the use of that information in explaining reasons for differences between accrual net income on a company s financial statements and the taxable income its partners and owners must report on their personal income tax returns. In the process of examining the information content in Schedule M-1, the webcast addresses the roles of guaranteed payments to partners and Section 179 deductions in establishing the net taxable income for partners and owners of partnerships and Subchapter S corporations. In addition, it provides a process for transforming information in the business income tax returns for a Subchapter S corporation or partnership into an accrual income statement.

Using Federal Tax Returns for Ratio and Cash Flow Analysis Session 6: Adjusted Business Income Tax Returns and Ratio Analysis The sixth session in this Credit College Course a 90 minute live webcast examines the differences in key financial performance ratios computed from business income tax returns and accrual financial statements. It then explores the process of transforming the quasi-income statement on the first page of business income tax returns for Subchapter S corporations, partnerships, and limited liability companies (Schedule 1120S and Schedule 1065) into an accrual income statement, using information from Schedule K and Schedule M-1. Further, the webcast emphasizes the importance of either discarding business income tax returns as the basis for borrower analysis or transforming Schedule 1120S or Schedule 1065 into an accrual income statement for use in proper ratio construction and borrower assessment. Session 7: Adjusted Business Income Tax Returns and Cash Flow Analysis The seventh session in this Credit College Course a 90 minute live webcast explores the process of transforming the quasi-income statement on the first page of business income tax returns for Subchapter S corporations, partnerships, and limited liability companies (Schedule 1120S and Schedule 1065) into an accrual income statement. In effect, it identifies all adjustments to revenue and expense accounts on Schedule 1120S or Schedule 1065, using information in Schedule K and Schedule M-1, necessary to transform these schedules into an accrual income statement. Further, the webcast clearly illustrates and emphasizes that the Uniform Credit Analysis (UCA) cash flow statement cannot be constructed from unadjusted business income tax returns unless, and until, information in the returns are transformed to an accrual income statement. In the absence of doing so, lenders are limited to inaccurate approximations of EBITDA and traditional cash flow as estimates of a borrower s ability to service its interest-bearing debt. Session 8: Cash-Based Business Income Tax Returns and Credit Assessment The eighth, and final, session in this Credit College Course a 90 minute live webcast reviews the methodology for transforming the quasi-income statement reported on a cash rather than accrual basis for a Subchapter S corporation, partnership, or limited liability company (Schedule 1120S and Schedule 1065) into an accrual income statement, using information in Schedule K, Schedule M-1, and associated statements. It explores the differences in key performance ratios computed from cash-based business income tax returns and accrual financial statements. In addition, the webcast examines the differences between ordinary business income reported on a cash basis on the business income tax returns and actual Business Cash Income reported on the Uniform Credit Analysis (UCA) cash flow statement. Further, it focuses attention on the importance of identifying the source of cash to service interest-bearing debt, as well as emphasizes the necessity of using accrual financial statements for ratio and cash flow analysis in bringing closure to this Credit College Course.

Credit Basics Credit College Credit Basics examines the use and application of the analytic tools and techniques required to determine if a loan request qualifies for further, in depth, analysis and assessment. At the end of the four online sessions six hours of instruction participants will understand the difference is business organizations, the role that distributions and loans to owners play in the analytical process, the computation and interpretation of key performance ratios, the use and limitations of cash flow proxies and the Uniform Credit Analysis (UCA) cash flow statement, and the impact management competence and expertise exert on a company s performance. This Credit College Course is directed toward anyone who needs to immediately master the basics of credit analysis so that he or she can quickly and effectively identify and qualify a creditworthy prospect or borrower. Credit Basics is delivered via four 90-minute webcasts over a four-week period. Each session includes a multistep exercise, background reading materials, and depending on the session focus one or more company financial statements. In addition participants may complete a brief online review quiz following each session, as well as access and complete, at their option, a 90-minute online final exam. Each Session is 1.0 Connections for Members or $250 for non Members. Session 1: Understanding Financial Statements and Business Organizations Examines the similarities and differences in income statement and balance sheet accounts for a limited liability company, a Subchapter S corporation, and a sole proprietorship with emphasis on the existence or absence of income tax accounts, as well as explores the sequence and rationale for the flow of accounts. Further, the session reviews the areas of similarity and difference between and among a Subchapter C corporation, a Subchapter S corporation, a partnership or limited liability company, and a sole proprietorship. Session 2: Personal Qualities and Competitive Advantages Reviews a series of personal qualities that are both desirable and important to an entrepreneur's prospects for business success, as well as examines the sources of competitive advantage and the prospects of maintaining those competitive advantages over time. The session draws on an audio interview with the owner of a small business that provides and installs floor coverings for large retail merchandisers and apartment complexes. Session 3: Critical Ratios and the 1 st Necessary Condition for Business Success Examines the computation and interpretation of critical performance ratios in the process of establishing a company's risk position and shifts in its risk profile from one period to the next. In addition, the session introduces the first of two necessary conditions for business success following adjustments to reported net income that illustrate the actual profit position of a company. Finally, the session reviews key areas of lender interest based on analysis of critical performance ratios. Session 4: Non-Financial Red Flags, Cash Flow and 2 nd Condition for Business Success Examines the use and limitations of traditional "cash flow" and explores a truncated version of the Uniform Credit Analysis (UCA) cash flow statement in identifying the source of cash to meet debt service. Further, the session introduces the second of two necessary conditions for business success following examination of the cash flow snapshot format. Finally, the session reviews non-financial red flags and their likely impact on company performance in the process of assessing whether to pursue a business relationship with Total Coverage, Inc. www.shockproof.biz Shockproof! Training 866.237.7228

Accounting Essentials Credit College Accounting Essentials explores the fundamental and essential concepts and principles of accrual accounting. At the end of the four online sessions, participants will understand financial statement structure and composition, double entry accounting, the accounting equation, debits and credits, the critical accounting principles, the effect of improperly recorded transactions and the generation of the balance sheet and income statement from a series of recorded transactions over a finite time period. This Credit College Course is directed toward analysts and lenders with little if any accounting knowledge, although an analyst or lender with some accounting knowledge and experience may benefit from Session 4. Accounting Essentials is delivered via four 90 minute webcasts over a four week period. Each session includes a multi-step exercise, background reading materials, excerpts from financial statements for a range of different companies, and brief online review quiz. Participants, at their option, may complete a 90-minute online final exam Session 1: Financial Statement Structure and Composition Reviews definitions for revenue, expense, asset, liability, and net worth accounts, examines a range of accounts in identifying income statement and balance sheet accounts, explores the rationale for the order of accounts on the income statement and balance sheet, and reviews the process of constructing both an income statement and balance sheet from scrambled accounts for a retailer and real estate property management company. Session 2: Double Entry Accounting, the Accounting Equation, and Debits and Credits Examines the purpose and use of double entry accounting, reviews the accounting equation and the impact of net income or loss on movements in the accounting equation, explores the purpose and use of debits and credits and the manner in which debits and credits impact accounts within the five accounting blocks, reviews the correct debit and credit entries for a range of transactions, and introduces and explores the use of T accounts in illustrating increases or decreases in account balances. Session 3: Critical Accounting Principles and Assumptions and More Debits and Credits Examines the historic cost principle, the conservatism principle, the revenue recognition principle, the matching principle, and the going concern assumption and explores the correct accounting entries to record bad debts, decreased asset values, deferred revenue, and subsequent revenue recognition, illustrates the impact of bottom line profit from failure to correctly apply the matching principle, and reviews possible income statement and balance sheet values in the absence of the going concern assumption. Session 4: Recording Transactions and Creating the Balance Sheet and Income Statement Examines the proper debit and credit entries to post 90 days of business transactions for both a retailer and real estate property management company, explores the benefits and possible pitfalls of the trial balances, reviews the use of general ledger entries to structure a balance sheet and income statement for the 90 day period in question, and addresses the interpretation of the resulting balance sheets and income statements in the process of reinforcing all the issues addressed in Accounting Essentials and bringing closure to the course.