The six Cs of Credit (or 3 or 5) are taught to every lender when they first start out. Here are some: Character Capacity Capability Cashflow Collateral The post 2 NEW C's of Credit! Apply these in your business borrower relationships appeared first on Linda Keith CPA ..read more

I am not at all sure lessons have been learned...yet. You'll find a good list, though, in the Feb 2009 RMA Journal article by J. Tol Broome Jr, EVP and Specialized Lending Group manager of BB&T in Winston-Salem, NC on "Eight Lessons Learned from the Credit Crisis". Mr. Broome's focus is bank-wide, so think about how you can apply these lessons at the lender-level. 1) Underwrite Your Own Risk I agree with Mr. Broome that if you 'originate to hold' you are better off if you are stuck holding. And if you are participating with another bank, and they have done the initial underwriting, you sti ..read more

Michael’s question: My question is about 1065, K-1,Part III section 4 Guaranteed Payments. In Lender's Online Training you taught us that guaranteed payments are cashflow, and that we should reframe the word 'guaranteed' to 'agreed upon' payments since if the company does not have sufficient operating cashflow to pay them, they probably are not actually guaranteed. Do these payments show up anywhere on the individual’s tax returns? The post Where are Guaranteed Payments on a 1040? appeared first on Linda Keith CPA ..read more

The post Understanding Why Tax Returns and Financial Statements Can Differ Significantly for the Same Year appeared first on Linda Keith CPA ..read more

Your question: What is 'Nominee' income and how do I treat it? Linda says: Ignore the expense and the associated income. The post Understanding Tax Return Analysis and Nominee Income for Credit Analysts: Can You Utilize It? appeared first on Linda Keith CPA ..read more

Oscar asks: My borrower is a 50% shareholder for a business filing a 1120S. The K-1 indicates $276,970 in ordinary business income and $176,914 in Distributions. I'm giving him the $176,914 distribution as real income for sure. However, I'm not sure if I should give him the full $276,970 due to the fact it is listed as Ordinary Business Income in Box 1 of the K-1. The borrower confirmed he took the whole $276K. The post Cash Flow Analysis of K-1s: Count ordinary business income? appeared first on Linda Keith CPA ..read more

Lenders and underwriters in my training workshops on Cashflow Analysis of Tax Returns often stumble a bit on that word ‘guaranteed’. After all, we all know what that means, right? Well, it is dangerous to assume that words on tax returns or in financial statements mean the same thing the do in common usage. Read on and at the bottom of this post I’ll tell you what ‘guaranteed’ means in IRSSpeak. The post Why Guaranteed Payments are not Guaranteed appeared first on Linda Keith CPA ..read more

Brian's question: What does it mean when the k-1 income/loss is listed as 'passive' instead of 'non-passive'? The post Passive vs Non-passive K-1 Income/loss: Confusion reigns! appeared first on Linda Keith CPA ..read more

Desi's question: Can passive &/or non-passive losses on the 1040 tax return be added back to borrower/guarantor cash flow for global analysis? I am having trouble finding a definitive answer to this question. Linda says: There is a reason you are not finding an answer to your question. It is not whether something is passive or non passive that determines if it can be added back to cashflow. It is whether it represents significant, continuing source of (or depletion of) cashflow. The post Passive vs NonPassive Losses: What is a lender to do? appeared first on Linda Keith CPA ..read more

Your question: Can I use the 'Self-employment earnings (loss)' on Line 14 (A) of the 1065 K-1 as cash flow? The post Self-employment earnings from 1065 K-1 appeared first on Linda Keith CPA ..read more