Credit Approval Process:
ArchOver’s Credit Approval Process is designed to facilitate the on-boarding of consistently high quality borrowing businesses.
Assessing businesses thoroughly takes time, and at the heart of the Credit Approval Process sits an in-house team of Credit Analysts dedicated to reviewing, analysing and interrogating the information provided by prospective Borrowers.
Before a business reaches the Credit Team, the Commercial Team will have already carried out a detailed review of the business and its suitability to be listed on the ArchOver platform. A temperature test, with a member of the Credit Committee, will allow the business to be passed through to the Credit Team or rejected at an early stage.
Once accepted into credit, the assigned Analyst will prepare a detailed Credit Paper that is structured to provide a clear and objective assessment of the business and to thus enable good lending decisions to be made.
We utilise a number of credit tools to help us to start evaluating a business, these include:
Wiserfunding: Credit scoring system that utilises Ai and Altman SME Z-Score models that produce industry leading analysis on prospective Borrowers.
Endol Corporate business intelligence that helps with risk insights and hard data information.
AccountScore (part of Equifax) that provides us ‘open banking’ capability to review, analyse and monitor Borrower bank accounts both during credit analysis and during monitoring.
Although these are powerful tools, desk research and deep engagement with the prospective Borrower provides our Credit team with ‘soft’ data that is often key in making lending decisions.
The Credit Paper begins with a “soft” analysis of the business, which complements the more traditional “hard” analysis of security and financial performance. With the basic details of an application noted, the analysis starts with a review of business personnel. Analysts review the organizational structure of the business with a focus on the management team, asking questions around their experience within the business and sector, as well as looking for any “key person” risk. The digital footprint of the business is also explored, with an emphasis on any news articles involving the directors or the company itself.
An assessment of the available security follows; under ArchOver’s Secured service this usually means a business’s Accounts Receivable or its recurring revenue streams. The Analyst tests the security for potential issues such as bad debt, concentration or seasonality and then reviews historic security level to find an appropriate advance rate.
All prospective Borrowers are required to provide their previous 2 years’ accounts, latest management accounts and a 12 month projections for the 3 main financial statements (P&L, Balance Sheet and Cash Flow). The Analyst conducts a comprehensive review of this pack of information, which may include (but is not limited to):
- Reviewing the business’s sales-to-invoice process and billing cycle;
- Understanding historic and forecast changes in Turnover and margins in the P&L and stress testing the assumptions;
- Questioning the level of directors’ remuneration, if seemingly excessive;
- Assessing current and projected profitability;
- Questioning the recoverability of assets such as intercompany loans on the Balance Sheet, stripping them out if necessary and then assessing the impact on overall Balance Sheet strength;
- Analysing key Balance Sheet ratios;
- Looking at the level of existing debt and gearing in the business;
- Checking that the business is paying its creditors in good time;
- Scrutinising the Cash Flow for reasonableness and affordability.
Having completed the Credit Paper, the Analyst will summarise their overall assessment of the business and the key risks that have been identified through their work. A Credit Committee meeting is then arranged to take the opportunity to the next stage of the funding process.
The Credit Committee meeting is an opportunity for the Analyst to discuss the business and the Credit Paper in person with the Committee. After a group discussion, the prospective Borrower’s application will then be approved, declined, or additional information will be sought.
ArchOver’s Monthly Monitoring Process is designed to provide an on-going review and open dialog with Borrowers who use the ArchOver platform. We believe it is imperative that a relationship is developed to allow us to predict issues with Borrowers and work with them to find successful solutions when problems arise.
For “Secured” loans, the borrowing business is required to provide the following monthly updates:
- Aged Debtor / Relevant Revenue Report
- Confirmation that HMRC obligations are up-to-date
- Management Accounts vs Projections
- Management / Board Report
- Credit Insurance Report*
- Churn Report (value, number of customers and percentage)**
- Growth (value, number of customers and percentage)**
*Applicable to Borrower’s who have a Credit Insurance Policy
**Applicable to Borrower’s on an Assignability Loan Model
For “Advanced” loans, the borrowing business is required to provide the following monthly updates:
- Status Update on R&D / Grant Claim submission or payment.
- Confirmation that HMRC obligations are up-to-date
ArchOver usually meets Borrowers face-to-face during the evaluation process, three months after drawdown and then every six months during the loan term but this will depend on the term and type of loan.
The Loan Management team follows a strict process to complete the monthly monitoring and maintains open communication with all Borrowers. The monitoring team formally report monthly to the Credit Committee but have instant access to the Committee if issues arise.