THE BARATELLI INSTITUTE
· Mentoring at Scale
THE BARATELLI INSTITUTE
· Mentoring at Scale
Underwriting support for banks and lenders. Independent quality of earnings for transactions. Every report reviewed and signed by a US CPA.
Two things decide a commercial credit: whether the earnings are real, and whether the file supports the decision if somebody examines it a year later. This desk does that work from the borrower's own records — the general ledger, the bank statements, the payroll reports, the notes and the agings — and hands back the computation with the support attached to every number, in a credit memo and a workbook whose formulas are live.
Engaged by the lender, performed on the lender's file, and priced in writing from the document list before any work starts. No fee here is contingent on the credit decision, on whether a transaction closes, or on what the work finds.
The practical consequence is that the earnings number a lender puts in front of credit is now a number the lender has to have procured. It can no longer be inherited from a seller's package, and it can no longer be a recast the borrower typed into a spreadsheet. That raises two operational questions for every change-of-ownership file — who performs the testing, and who assembles what the testing needs — and both of them have to be answered before the file reaches committee rather than after.
This desk answers the first. It is engaged by the lender, it is independent of the buyer, the seller and the company, and it works from source documents rather than from summaries. The quality of earnings page sets out the testing, the turnaround and how the fee is set.
Baratelli Bankable, the Institute's accounting program, is free and always will be. Alongside it the Institute sells engagement work to third parties. These are engagements, not software: a signed engagement letter, a named document list, a fixed fee quoted before anything is sent, and a deliverable that a credit file or a transaction file can carry.
Seven engagements, each one work that a credit department already has to do and frequently has no capacity to do at the depth a later examination expects: write-ups and spreads, coverage recomputed, SBA eligibility against the SOP, loan packaging, borrowing base and collateral verification, covenant testing, and portfolio file review.
Each is performed on the lender's file, to the lender's terms, and delivered as a document the file keeps.
Lender-ordered, buy-side and sell-side. Revenue proved to the bank deposits, every add-back tested against the general ledger rather than accepted, wages tied to Forms W-3, working capital measured against a normal level instead of the closing balance, and the debt-like items the price should carry.
Fee basis: a fixed fee, quoted in writing from the document list before any work starts. Fifteen business days from complete information, half on signing and half on delivery, and no part of it contingent on the finding.
Engaged by the lender, performed on the lender's file, priced per file before any work starts. Each one is also a computation the free program performs on screen — so a lender can see exactly what the work consists of before buying any of it, which is a deliberate feature of how these are sold. What the engagement adds is the desk: the source documents obtained and tested, the exceptions named, and a US CPA's review and signature on the result.
Three fiscal years and a trailing-twelve-month column, spread from the borrower's general ledger rather than from a summary the borrower typed. Every adjustment is listed and traced to the document it came from, so a reviewer can follow any single line from the memo back to a bank statement or a payroll report without asking a question.
Coverage rebuilt from the records instead of carried over. Existing debt service is read off the actual notes rather than estimated, the new payment is computed at the lender's own terms, each add-back is tested rather than accepted, and the result is run under a sensitivity on revenue and on rate so that committee can see where the file stops covering.
Eligibility, size, use of proceeds, equity injection and the change-of-ownership conditions read against SOP 50 10 8.1, with the exceptions named before the file reaches credit rather than discovered afterwards. Each exception carries the citation it came from, so the question in front of the lender is a specific one about a specific paragraph.
The 7(a) package assembled and tied out: the forms, the historical and projected financials, the use of proceeds, and — the part that is usually missing — the schedule each figure comes from. A package that ties out is the difference between one round of questions and four.
Certificates verified against the agings and the ledger rather than accepted as submitted. Ineligibles are applied as the loan agreement actually defines them, availability is recomputed, and the collateral schedule is reconciled to the fixed-asset records. Where the certificate and the ledger disagree, the engagement says by how much and why.
Each covenant tested as written in the agreement — not as commonly computed — period by period, with the computation shown and the cushion stated rather than asserted. A covenant certificate whose arithmetic is on the page is one a borrower cannot dispute and an examiner does not have to reconstruct.
Existing files graded on one consistent rubric: what is missing, what is stale, and what would not support the credit if it were examined today. The output is a graded list a credit officer can work down in priority order, not a narrative.
| Engagement | Fee basis |
|---|---|
| Underwriting — engaged by the lender | |
| Single-file work — write-up and spreads, coverage, SOP review, packaging | Fixed fee quoted per file |
| Borrowing base and covenant monitoring | Fixed fee per period |
| Portfolio file review | Fixed fee per file reviewed |
| Quality of earnings — scope set by the purchase price, fee set by the document list | |
| Up to $3 million purchase price | Fixed fee quoted from the document list · 15 business days |
| $3 million to $6 million | Fixed fee quoted from the document list · 15 business days |
| Over $6 million | Fixed fee quoted from the document list · 15 business days |
Every engagement on this page carries a fee basis rather than a price list, and for the same reason: the work in a file is set by the records, not by the size of the loan or the size of the purchase price. The quote comes from the document list, in writing, before anything is signed, and it does not move afterwards because the file turned out to be harder than it looked. Half on signing and half on delivery. No fee is contingent on the finding or on the credit decision. Turnaround runs from complete information, not from the engagement date, and the intake list says what complete means.
An engagement letter is signed before anything is sent. It names who engaged this desk, confirms independence from the buyer, the seller and the company, fixes the fee, and states the scope — including what the engagement is not, which is set out below.
The company uploads through a private, encrypted link: general ledger, bank statements, sales by customer, payroll reports and agings, plus the notes and the loan agreement where the engagement needs them. Any accounting system works. Owners keeping books in Baratelli Bankable send the whole set in one click.
The work is performed against source documents. Nothing is accepted because it appeared in a summary, and where a figure cannot be supported the report says so rather than omitting it.
A US CPA reviews and signs. The client receives the report, an Excel workbook with live formulas so the figures can be re-run at different terms, and — on a quality of earnings — the signed management representation letter.
A lender relies on the earnings figure to make a credit decision, so the character of the engagement belongs on the face of the page rather than only in the letter. This work is a non-attest consulting engagement. It is not an audit, a review, a compilation, an examination or any other attestation engagement, and it is not performed under the AICPA attestation standards.
The same computations are built into Baratelli Bankable and are free to the borrower. Nine screens under Loans and planning cover loan readiness, the underwriting clean-up, SBA borrowing capacity, the loan package, the collateral schedule, collateral availability, the borrowing base certificate, a cash flow forecast and an acquisition model. A borrower who has run them arrives with the package already assembled in the layout this desk asks for, which shortens the engagement and narrows what there is to argue about.
A borrower on any other system is no harder to work with. The records are what get tested either way, and the program is not a condition of anything here — it is free, and the engagement is priced the same whether a borrower uses it or not.
A credit department with more files than capacity, or an SBA department that needs the SOP read by somebody whose job that is. The work comes back as a document the file keeps.
Start with the write-up and the coverage recomputation on one live file. It is the cheapest way to see whether the output is what a committee wants.
The earnings behind the price, before signing. A buy-side quality of earnings tests the add-backs, proves the revenue to the deposits, and measures working capital against a normal level rather than the closing balance.
The free reading on diligence is Due Diligence: What to Check.
A sell-side review before going to market. It does not satisfy the lender's requirement — that report has to be ordered by the lender — but it finds the issues while there is still time to fix them.
Start free with the sale readiness check, then read What the sale process looks like.
The Delta Fastener sample quality of earnings report and its workbook are available on request. Reading somebody's actual deliverable is a better basis for a decision than reading a page about it.
Philip A. Baratelli, CPA
philbaratelli@gmail.com
904-846-3011
baratelliinstitute.com