Project analysis for Standard projects

Credit analysis for non-state-guaranteed projects and state-guaranteed projects larger than €250,000.

Matthieu de Fréminville avatar
Written by Matthieu de Fréminville
Updated over a week ago
  • The credit analysis and underwriting for standard projects is performed by our credit analysts and based on financial results, management and market outlook.

  • The analysis consists of 5 steps and yields a credit score for the project, ranging from A+ to C-.

  • The interest rate of a project depends on several factors, such as its credit score, its duration, the level of security, the risk-free return in a company’s country of origin and the analysis type.

The risk analysis is performed in-house by our local Credit teams. The October financial analysts are in charge of collecting the quantitative and qualitative information necessary to assess the risk of the company and determine its risk rating (i.e. interest rate) before presenting it to the October Credit Committee. In this tutorial, we will walk you through the credit analysis process step by step.

Step 1: the eligibility test

The process starts with the borrowing company’s CFO (or the CEO, the accountant, etc.) doing the eligibility test (checking if the company matches the risk criteria of October) directly online. Within seconds (and just by typing in the name of the company and answering a couple of questions), the borrower knows whether its company is potentially eligible to a loan on October!

Our risk scoring algorithm by gathering public and private data on companies is able to automatically make a risk selection based on turnover, profitability and time of existence of the company in a few seconds.

Step 2: first analysis and meeting

If the borrower passes through the eligibility test, we ask to send us relevant files, such as financial statements, investment memorandums and bank statements. Our ‘X-ray’ internal tool automatically extracts relevant financial ratios and information from these documents and fills them in our scoring model that allows for a solid credit analysis.

The scoring model is filled with information about the loan, a reflection and a projection of the revenues, management fees and so on. This adds up to a total of 70 financial indicators, such as cash position, debt, accounts receivable, etc., that go back 3 years in time and 1 year into the future. This way, the scoring model shows the development of these financial indicators and gives insight in the financial performance. The financial performance of the borrower makes up for 60% of the credit score.

We always interview the borrower to ask any remaining questions. The interview serves another purpose as well: we do an assessment of the management qualities and relevant experience of the entrepreneur. 20% of the credit score is based on the management qualities of the borrower and its team.

Furthermore, we review the market outlook of the borrower and distinguish if the market is growing, stable or shrinking. Obviously, when the market outlook is negative, it also has a negative effect on the score. We also review what the position of the borrower is in the market and look at it’s marketshare. 20% of the credit score is dependent on the market and the borrower’s position in the market.

This scoring model is then combined with information from our huge database with all our past loans. Together with the financial elements, the team and the market outlook, it makes up the credit score.

Step 3: the credit score

The scoring model determines if the company project is doable or not. If a project is not doable, the project will be denied and it will not be presented to the lenders.

If a project is doable, our scoring model shows immediately what the credit score of this project will be. The credit score is not calculated on past performance but rather on a forecast of the company situation after receiving the October loan. The credit score ranges from A+ to C- (from high to low creditworthiness). The interest rate is determined by the credit score, the duration of loan, the level of security, the risk-free return in the company’s country of origin and the analysis applied.

. That is why interest rates within a credit score category can differ sometimes:

* Please note that French state-guaranteed loans always have an interest rate of 2%, which can be increased if the loan is extended.

Step 4: the credit committee

We then present the project to the October Credit Committee, where a minimum of 3 international Credit Directors have to approve the loan. When they give their go-ahead, the borrower will be presented an offer. When the borrower accepts the offer, the project will be presented to the lenders.

Step 5: fraud prevention

To prevent fraud we cross-reference the information that we have available from the borrower with external databases. Also, we compare financial flows and data from the financial account with each other, to see if they align. To be able to check this, we always ask for the company's bank statements. Furthermore, we check who are the main customers and suppliers of the borrower and check whether the amount requested makes sense in light of the purpose of the loan. The final stage includes a background check on the entrepreneur and a check of the company’s statutes.

And that’s it! Our process from start to end. It is a substantial process that gathers a lot of information from a lot of different sources. We constantly monitor our loan portfolio and the economic context to adjust and improve our credit analysis.You are always encouraged to read the project description and review the financial ratios yourself as well. With the 48 hour preview of projects you have time to discover the borrowers you will support!

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