Credit Analysis for SC Egger România SRL

INTRODUCTION

Financial assistance in the business environment is one of the key element in economic growth, and creating and developing a good relationship with the financial institutions, especially with the banks become a priority not only for young entrepreneurs but for long-established multinationals as well.

In order to raise capital, companies with market potential should have a thorough constructed business plan through which the lender must demonstrate credibility, viability, consistency, enough strength to face any difficulties that might occur along the way.

All the companies interested in building a long relationship with the financial institutions will be going through a long, complicated credit analysis made by those creditors, and the results of the process will depend the future achievements of the investors.

DESCRIPTION OF THE LOAN

Credit Analysis involves the quantitative and qualitative aspects of the study starting with the level of financial performance, the structure and type of management, the position of the company on the market as well as the risks at which is being exposed during the lending contract.

Any loan officer when start analyzing the activity of an enterprise, will be conducted by the five “C’s” basic components of the credit analysis which are: character, capacity, capital, collateral, and conditions.

Capacity means the ability of the lender to repay the loan respecting the terms established in the contract, so the officer will need to pay attention to the cash flow statements and to make prospects about future , unexpected changes in those statements. The character refers as the general background of the company, the experience in the field of business, references from partners, suppliers or important clients. Another important aspect is the capital of the company, the value of its own assets as well as the level of commitment of the shareholder in the development of the business.

The collaterals or the guarantees are very important in the moment when a firm decide to get financed by a bank or a financial institution. The collaterals represent forms of security the customer need to offer to the lender in case the loan is not paid according with the terms appeared on the contract. The conditions explain how the loan will be used, for what purpose, how it will be transformed into capital, whether will for a long, medium or short investment.

The present project intends to analyze the capability of S.C. EGGER ROMANIA S.R.L. to obtain financial assistance from a commercial bank for future development. The company is looking to be approved for a long-term loan with a five year period for the purpose of acquiring a new type of biomass central which will generate thermic energy used in the production line of the factory. The biomass central has an important role in accelerating the manufacturing process, but in the same time is an essential factor in keeping a clean environment in the area.

The value of the investment goes-up to 30 million Euro, which means around 134 million Ron, the amount being divided along the 5 years in 10 installments. This type of loan is being guaranteed not only with the equipment itself, but usually the banks request the loans to be secured with the companies’ own assets like buildings, equipment, or receivables. In case of approval, the agreement will be concluded into a loan contract that provides information about the terms, repayment plan, the interest administered by the bank, the restrictive covenants which entitles the lender to receive the payments before any other expenses like bonuses or dividends.