Lender evidence readiness
Produced: 2026-09-20
Language: en
IDER in-house training materials: practical cases, illustrations and guided exercises.
All cases and figures are hypothetical teaching examples, not current market data.

[00:00:00.000 – 00:00:46.529]
Turn a borrowing request into a repayment case
ON SCREEN
Cash available for debt service
Evidence that a lender can trace
Hypothetical case: GHS millions

TEACHING COMMENTARY
A lender does not simply ask whether a business reports a profit. The practical question is whether verifiable cash will be available on the dates that interest and principal fall due, including under a plausible downside. This clinic shows how to construct that repayment case and organise the evidence supporting it. All numerical amounts are hypothetical and expressed in millions of Ghana cedis unless otherwise stated. We will calculate debt-service capacity, test collection delays and distinguish collateral availability from operating cash. Keep an evidence register alongside your calculations. For every claimed source of repayment, identify the underlying transaction, its timing and the document that another analyst could use to verify it independently.

[00:00:46.529 – 00:01:33.167]
Specify purpose, amount, tenor and repayment source
ON SCREEN
Why is the borrowing needed?
Which cash flow repays it?
Does the maturity fit the operating cycle?

TEACHING COMMENTARY
Start the credit case with the use of funds. A seasonal inventory facility, a long-lived machine and a continuing operating loss create very different financing needs. Estimate the amount and duration of the cash gap before selecting a product or repayment schedule. The primary repayment source should follow the transaction being financed: customer collections for working capital or sustained operating cash for an investment loan. An asset offered as security does not remove the need to explain repayment. Compare maturity with the time needed to generate cash, and identify refinancing assumptions explicitly. A short facility that must repeatedly roll over can create material risk even when the annual profit forecast appears comfortable to management.

[00:01:33.167 – 00:02:20.796]
Define cash available for debt service
ON SCREEN
EBITDA 1.80; cash tax 0.24
Maintenance investment 0.18; extra NWC 0.28
Cash available for debt service: 1.10
CFADS = 1.80 − 0.24 − 0.18 − 0.28 = 1.10
TEACHING COMMENTARY
Begin with earnings before interest, tax, depreciation and amortisation of one point eight million. Deduct cash tax of two hundred and forty thousand, maintenance investment of one hundred and eighty thousand and additional working capital of two hundred and eighty thousand. This leaves one point one million available for debt service under our analytical definition. Notice why reported earnings alone overstate repayment capacity: taxes, asset upkeep and customer credit compete for cash before lenders are paid. Define each adjustment and reconcile it to the model. In practice, loan agreements may use a different cash measure, include permitted adjustments or treat leases differently. Reproduce the contractual definition exactly when calculating covenant compliance rather than silently substituting this teaching example.

[00:02:20.796 – 00:03:01.339]
Compare available cash with scheduled obligations
ON SCREEN
Principal 0.60; interest 0.20
Total debt service 0.80
Coverage ratio 1.375×
DSCR = 1.10 / (0.60 + 0.20) = 1.375×
TEACHING COMMENTARY
Scheduled principal is six hundred thousand and interest is two hundred thousand, giving total debt service of eight hundred thousand. Divide one point one million of available cash by eight hundred thousand to obtain coverage of one point three seven five times. Interpret the ratio carefully: it compares a defined cash numerator with a defined payment denominator over the same period. It is not a probability of default or a guarantee of payment. Include all obligations required by the relevant agreement and reconcile them to the debt schedule. Check whether fees, lease payments or other facilities belong in the calculation. A seemingly strong ratio can be misleading when a major balloon payment has been left outside the period displayed.

[00:03:01.339 – 00:03:48.348]
Translate a ratio into a cash buffer
ON SCREEN
Illustrative minimum coverage 1.25×
Required cash: 1.25 × 0.80 = 1.00
Cash headroom: 0.10
Cash headroom = 1.10 − 1.25 × 0.80 = 0.10
TEACHING COMMENTARY
Suppose this fictional agreement requires coverage of at least one point two five times. With debt service of eight hundred thousand, required available cash is one million. Our base case therefore has only one hundred thousand of cash headroom above that threshold. This translation is more actionable than saying the ratio is comfortably above one. A collection delay, cost overrun or tax payment of slightly more than one hundred thousand could remove compliance. Distinguish covenant headroom from the bank balance and from undrawn credit: they measure different constraints. Also verify testing dates, cure provisions and permitted adjustments in the actual agreement. The threshold used here is illustrative, not a universal lending standard or a promise of acceptance.

[00:03:48.348 – 00:04:41.325]
Build a traceable credit evidence index
ON SCREEN
Statements, ledgers and bank reconciliations
Contracts, ageing and debt schedules
Source date, owner and unresolved exceptions

TEACHING COMMENTARY
Create an evidence index that lets a reviewer move from the credit memo to the calculation and then to supporting documents. Reconcile management accounts with the ledger and available financial statements. Link customer balances to ageing, contracts and subsequent collections; link debt obligations to signed schedules and bank confirmations where available. Record reporting dates so that old statements are not presented as current evidence. For each unresolved difference, state the amount, explanation, owner and expected resolution date. Avoid filling gaps with invented professional sign-offs. A preparer's name confirms responsibility for preparation; an independent assurance conclusion requires actual work by an appropriately authorised professional. Clear exceptions are more credible than a polished pack that hides uncertainty.

[00:04:41.325 – 00:05:25.803]
Pause: size debt service under a downside
ON SCREEN
Downside available cash 0.88
Minimum coverage remains 1.25×
Calculate maximum service and principal capacity

TEACHING COMMENTARY
Now assume a coherent downside reduces available cash to eight hundred and eighty thousand. The illustrative minimum coverage remains one point two five times. Calculate the maximum total debt service consistent with that threshold. If interest remains two hundred thousand, calculate the corresponding principal capacity. Compare it with the current principal schedule of six hundred thousand and explain what action would be necessary before using a lower payment in the forecast. Do not assume the borrower can unilaterally change a signed repayment schedule. Pause the video and write the two calculations plus a short recommendation. Your reasoning should separate what the business can afford from what the existing contract actually requires on the agreed payment dates.

[00:05:25.803 – 00:06:15.661]
Affordable service is not an agreed repayment schedule
ON SCREEN
Maximum total debt service 0.704
With interest 0.20, principal capacity 0.504
Current schedule needs lender-approved revision
Maximum service = 0.88 / 1.25 = 0.704; principal capacity = 0.504
TEACHING COMMENTARY
Divide eight hundred and eighty thousand by one point two five: maximum total debt service is seven hundred and four thousand. After unchanged interest of two hundred thousand, the implied principal capacity is five hundred and four thousand. That is ninety six thousand below the existing six hundred thousand principal requirement. The present schedule would produce coverage of only one point one times. A revised schedule requires lender agreement and must be tested across every future period, including any larger final balance or extended maturity. Moving principal into the future changes interest and refinancing exposure, so our constant-interest calculation is only an initial sizing exercise. Document the proposed amendment rather than presenting affordable payments as an already approved arrangement.

[00:06:15.661 – 00:07:07.903]
Separate eligible collateral from operating cash
ON SCREEN
Eligible receivables 1.20 × 70%
Eligible inventory 0.80 × 50%; reserves 0.14
Base 1.10; drawn 0.90; availability 0.20
1.20 × 70% + 0.80 × 50% − 0.14 = 1.10; availability = 0.20
TEACHING COMMENTARY
A borrowing base determines facility availability from eligible assets under agreed rules. In our example, seventy percent of eligible receivables of one point two million gives eight hundred and forty thousand. Fifty percent of eligible inventory of eight hundred thousand adds four hundred thousand. Deduct reserves of one hundred and forty thousand to obtain a borrowing base of one point one million. With nine hundred thousand already drawn, apparent undrawn availability is two hundred thousand, subject to facility limits and conditions. This is financing capacity, not additional operating cash generation. Verify exclusions for overdue or disputed balances, concentration, obsolete stock and prior security interests. Eligibility, valuation and enforceability must be assessed under the actual agreement and relevant local requirements.

[00:07:07.903 – 00:07:56.050]
Find the weak month hidden by annual coverage
ON SCREEN
Map collections and essential payments
Insert exact debt-service dates
Test the lowest cash balance and draw conditions

TEACHING COMMENTARY
An annual coverage ratio can conceal a cash shortfall in the month a large principal payment falls due. Build a monthly cash schedule using actual sales seasonality, collection lags, supplier terms, payroll, taxes and debt dates. Roll forward the opening balance and show the minimum cash position before and after committed financing. Recheck borrowing-base availability in that weak month; the same downturn that delays collections may also make receivables ineligible and reduce the facility. That interaction is a common source of false comfort. Model contingency actions with realistic execution dates and costs. Selling inventory or obtaining new equity is not an immediate solution simply because a spreadsheet can enter the receipt in the required month.

[00:07:56.050 – 00:08:44.058]
Stress repayment drivers that can fail together
ON SCREEN
Lower margins and slower collections
Customer concentration and collateral eligibility
Refinancing, currency and interest exposure

TEACHING COMMENTARY
Choose stress scenarios from the business's actual vulnerabilities. A dominant customer's delay can reduce cash collections, worsen receivable ageing and shrink borrowing availability simultaneously. Currency depreciation can raise imported input costs while foreign-currency debt becomes more expensive in local terms. Floating interest can increase service when margins are already compressed. Document the mechanism, timing and evidence behind each combination instead of applying the same arbitrary percentage to every row. Test proposed mitigations against their own constraints: a price increase may reduce volume, while extending supplier terms may threaten supply. Present the residual shortfall after feasible actions and identify the point at which the business must seek lender engagement rather than waiting for a missed payment.

[00:08:44.058 – 00:09:35.665]
Define triggers before a breach occurs
ON SCREEN
Contract definitions and testing dates
Leading indicators and forecast headroom
Named escalation owner and response deadline

TEACHING COMMENTARY
A useful monitoring plan identifies deteriorating conditions before a formal covenant test fails. Track overdue receivables, contribution margin, order cancellations and forecast cash alongside the contractual ratio. Set internal warning thresholds with enough time to investigate and act; these are management controls, not replacements for the agreement. Assign responsibility for preparing each measure and for contacting the lender when a material issue emerges. Keep evidence of assumptions, calculations and communications in the credit file. Where a waiver or amendment is needed, distinguish a request from written approval. A borrower should never label a covenant compliant merely because management expects flexibility. Transparent early engagement supports a more credible response than optimistic numbers delivered after the problem has become unavoidable.

[00:09:35.665 – 00:10:22.140]
Pause: collections slow by twenty days
ON SCREEN
Uniform annual credit sales 7.30
Additional collection delay: 20 days
Calculate extra working capital and revised coverage

TEACHING COMMENTARY
For the second exercise, assume annual credit sales of seven point three million are earned uniformly over a three hundred and sixty five day year. Collections now take twenty additional days. Estimate the extra cash tied up in receivables and subtract it from the base available cash of one point one million. Keep scheduled debt service at eight hundred thousand and calculate the revised coverage ratio. State the assumptions that make the days-based calculation appropriate, including unchanged sales, no tax complications and no offsetting change in supplier credit. Pause now to complete the arithmetic. Then explain why a business can experience this deterioration even when the profit statement still reports the original level of sales and earnings.

[00:10:22.140 – 00:11:08.998]
A timing shock can erase repayment capacity
ON SCREEN
Extra receivables 0.40
Available cash falls to 0.70
Coverage falls to 0.875×
Extra NWC = 7.30 / 365 × 20 = 0.40; DSCR = 0.70 / 0.80 = 0.875×
TEACHING COMMENTARY
Uniform daily credit sales are twenty thousand: seven point three million divided by three hundred and sixty five. Twenty additional days therefore tie up four hundred thousand in receivables. Available cash falls from one point one million to seven hundred thousand. Dividing by scheduled service of eight hundred thousand gives coverage of zero point eight seven five times, meaning the defined available cash is insufficient for the scheduled payments. Profit can remain unchanged because the sales were already recognised; the deterioration is in collection timing. Investigate ageing, disputes and subsequent receipts, then update the monthly cash schedule and borrowing base together. In a seasonal business, replace this shortcut with invoice-level or monthly cohorts because uniform daily sales may misstate the exposure.

[00:11:08.998 – 00:12:01.824]
Write an evidence-led financing recommendation
ON SCREEN
Purpose, amount, tenor and repayment source
Base, downside, monthly liquidity and collateral
Conditions, exceptions and monitoring responsibilities

TEACHING COMMENTARY
The credit memo should make a clear financing recommendation while exposing the assumptions that could overturn it. State the purpose, amount, tenor and primary repayment source, then reconcile the requested structure with the operating cash cycle. Present base and downside coverage, monthly cash needs and collateral availability as separate analyses. List material exceptions and proposed conditions with accountable owners and dates. Distinguish information supplied by management from independently checked evidence, and identify any specialist legal, valuation or assurance work still required. Explain why the proposed mitigations are feasible and what risk remains afterward. A concise, traceable argument is more useful than a large attachment pack whose key figures cannot be connected to the recommendation or reproduced by another reviewer.

[00:12:01.824 – 00:12:47.327]
Prepare a lender-ready evidence and monitoring pack
ON SCREEN
Reconcile a repayment cash bridge
Test coverage, collections and available facilities
Deliver an evidence index and action log

TEACHING COMMENTARY
For your applied work, select a borrowing request and reconstruct the cash available for repayment from the underlying accounts and operating assumptions. Reconcile the full debt schedule, calculate headroom under the actual definitions and test a plausible collection or margin shock. Build a monthly view and examine whether collateral eligibility weakens at the same time as cash. Prepare an evidence index, an exception log and a monitoring plan with named responsibilities. Complete the six questions and two applied tasks accompanying this clinic before reviewing a live case. The aim is to explain not only whether financing appears affordable today, but also which events would make repayment difficult, how those events would be detected and what action could follow.

METHOD REFERENCES
Office of the Comptroller of the Currency — Commercial Loans
https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-loans/pub-ch-commercial-loans.pdf
Primary reference for commercial credit analysis and repayment-source discipline. Used as analytical background, not as Ghanaian law; all ratios, thresholds and advance rates are hypothetical contractual examples.

Audio credits
https://iderafrica.com/downloads/briefings/audio-credits.txt