1 ATIA 2007 AFP Institute Patti Lind RESNA/NATTAP January 24, 2007

2 Goals Affirm the connection between policy and portfolio management Continue the discussion on sustainable loan program management Reframe underwriting practices for guarantors and direct lenders

3 The Policy Conversation When was your policy developed? When did you last perform a comprehensive review of your policy?

4 Policy Considerations Policy impacts: –Daily lending practices –Ability to grow in the future Developing supportive policy –RESNA/NATTAP as a resource –Other non-bank lenders

5 Policy Considerations Is it categorically organized? –Mission and Program Description –Products and Services Eligibility Criteria Summary of Loan Terms and Conditions

6 Policy Considerations Loan Review Process –Application Requirements –Fees –Loan Review and Approval –Underwriting Criteria –Loan Denials

7 Policy Considerations Loan Monitoring, Services, Collections –Responsibility of Bank (Guaranteed Loans) –Responsibility of AFP Portfolio Management Policies –Capital Structure –Equity –Liquidity Reserves –Diversification –Reserving for Loan Loss –Risk Rating

8 Underwriting Conversation  Who determines underwriting criteria?  What impacts underwriting criteria?

9 Underwriting Notes Credit History Current Debt to Income Current Monthly Income to Expenses –Sources of income –Deposit relationships Other Resources Appropriateness of AT Q: Do specific AT loan categories require special underwriting?

10 Portfolio Management Capital Structure –Capitalization Grants Contributions Net Earnings Program Related Investments Loans –Equity Net Worth Goal –25% –Liquidity Reserves Goal –Minimum 10% –Diversification Sources of Capital

11 Sustainability Sustaining the Organization Sustaining the Mission –Assessing the Community We Serve –Aligning Loan Products/Services –Facilitating the Availability of Credit ↓ Maximizing Existing Loan Capital Diversification of New Loan Capital

12 Sources of Loan Capital Adequate Capitalization vs. Funding with Available VR $$ Equity Grants –Leverage other financing –Should require some client participation –May provide for different levels of assistance depending on policy decisions: Iowa’s First Step Program Loans –Microloans and other non-bank loans/grants –Traditional bank financing SBA Guarantees

13 Tracking & Monitoring Intense start-up monitoring –Month 1 = Weekly Use business plan as implementation guide –Months 2 & 3 = Every 2 Weeks –Months 4 – 12 = Monthly Listen for TA needs Track financial progress Review for appropriate closure

14 Resources & Supports Identifying local service providers –The Abilities Fund links with microenterprise technical and financial assistance providers –Online Services –Small Business Development Centers (SBA funded) –Independent service providers Identifying financial resources –Banks –Non-banks: microloan programs, CDFI’s, local consortiums –Guarantors: SBA –Ticket to Work –SSA PASS $$

15 Self-Education Resources Smart Steps to Smart Choices Author: David Bangs Upstart Publishing Financial Planning for Your Microenterprise Authors: National Endowment for Financial Education