1# Banque Commerciale de l'Outaouais — Commercial Credit Policy CP-2026-01 (extract)23Applies to commercial term loans and operating facilities between $250,000 and $10,000,000 to privately held businesses. Effective January 1, 2026. This extract contains the sections relevant to the credit analysis of an equipment term loan request. Amounts in Canadian dollars.45## 1. Credit analysis standard67Every request is analysed on the borrower's most recent annual financial statements (audited, reviewed or compiled, in that order of preference) covering at least three fiscal years, plus a pro-forma view that includes the requested financing **as proposed by the applicant**. Figures supplied by the applicant outside the financial statements (cover letters, forms, projections) are not used for ratio computation; any difference between them and the financial statements must be documented in the credit memo and, when material (5 % or more of the line item), raised with the applicant before approval.89## 2. Ratio definitions (mandatory — no other definition may be used in a credit memo)1011- **EBITDA** = net income + income taxes + interest and bank charges + depreciation and amortisation, as reported. EBITDA is **not** adjusted for rent or operating lease expense.12- **Cash taxes** = income taxes paid as reported in the statement of cash flows (supplementary information).13- **Unfunded capital expenditures** = purchases of property, plant and equipment during the year that were not financed by term debt or capital leases.14- **Debt service** = interest and bank charges + scheduled principal repayments on all interest-bearing debt.15 - *Historical* years: interest as reported in the income statement + principal actually repaid during the year per the statement of cash flows.16 - *Pro-forma* (the year following the latest statements): interest and bank charges of the latest fiscal year **+** the principal on existing debt scheduled for the next fiscal year (the current portion of long-term debt, whether presented on the face of the balance sheet or disclosed in the notes) **+** the first-year debt service of the requested facility.17 - First-year debt service of a requested amortising loan = annual interest at the proposed rate on the full principal + the first-year scheduled principal, both taken from a **level annual payment schedule** over the proposed amortisation period (payment = P × r / (1 − (1 + r)^−n)), irrespective of the actual payment frequency.18- **Debt service coverage ratio (DSCR)** = (EBITDA − cash taxes − unfunded capital expenditures) ÷ debt service. For the pro-forma DSCR, the numerator uses the latest fiscal year's EBITDA, cash taxes and unfunded capital expenditures (no projected improvement is credited).19- **Total debt** = bank indebtedness (operating lines) + long-term debt including its current portion + capital leases + **operating leases capitalised at 8 × the annual rent disclosed in the lease commitment note**. Pro-forma total debt adds the full amount of the requested facility.20- **Total debt / EBITDA** = total debt ÷ EBITDA of the same fiscal year (pro-forma: latest fiscal year's EBITDA).21- **Current ratio** = current assets ÷ current liabilities, where current liabilities **include the current portion of long-term debt** even when the borrower's statements present long-term debt in total.22- **Total debt / tangible net worth** = total debt ÷ (shareholders' equity − intangible assets − amounts due from shareholders).23- **Loan-to-value (LTV)** = amount of the requested facility ÷ net available value of the collateral pledged to that facility, where net available value = appraised (or invoice) value − prior-ranking charges. Assets charged to other facilities (e.g. receivables and inventories under an operating line) are excluded. **Lending value** = Σ (net available value × advance rate); it must be at least 100 % of the facility.2425## 3. Underwriting standards (all must be met on the pro-forma view for approval as proposed)2627| Standard | Threshold |28|---|---|29| Pro-forma DSCR | ≥ 1.25 |30| Pro-forma total debt / EBITDA (operating leases capitalised) | ≤ 3.50 |31| Current ratio (latest fiscal year, policy basis) | ≥ 1.20 |32| LTV on equipment term loans | ≤ 75 % and lending value ≥ 100 % of the facility |33| Term and amortisation of equipment loans | ≤ 10 years and ≤ the useful life of the equipment |34| Equity contribution to the project | ≥ 15 % of project cost, from the borrower's or shareholders' own funds |3536**Decision rule.** If every standard is met, the facility may be recommended for approval as proposed, with the standard conditions of section 6. If **any** standard is not met with the structure proposed by the applicant, the analyst must **decline the request as proposed** and may propose a **counter-offer** (lower amount, longer amortisation within the limits above, additional equity, additional security, or a combination) that meets every standard; the memo must show the pro-forma ratios of the counter-offer. An approval that relies on projected improvements in earnings is not permitted for ratings 4 and above.3738## 4. Risk rating grid (1 = strongest, 7 = weakest)3940The borrower risk rating is determined on the **pro-forma** ratios of the structure being recommended (as proposed, or the counter-offer). Each of the two component ratios maps to a band; the borrower rating is the **weaker (higher) of the two component bands**. The DSCR band and the leverage band are read on the same grid:4142| Rating | Pro-forma DSCR | Pro-forma total debt / EBITDA | Indicative pricing (term loans) |43|---|---|---|---|44| 1 | ≥ 2.50 | ≤ 1.50 | prime + 0.50 % |45| 2 | 2.00 – 2.49 | 1.51 – 2.25 | prime + 0.75 % |46| 3 | 1.50 – 1.99 | 2.26 – 2.75 | prime + 1.25 % |47| 4 | 1.15 – 1.49 | 2.76 – 3.50 | prime + 1.75 % |48| 5 | 1.00 – 1.14 | 3.51 – 4.50 | prime + 2.50 % |49| 6 | 0.90 – 0.99 | 4.51 – 5.50 | prime + 3.50 % |50| 7 | < 0.90 | > 5.50 | not priced — refer to Special Loans |5152BCO prime rate at the date of this extract: 5.45 %. Pricing is indicative; the account manager may propose a fixed rate within ±0.25 % of the grid rate for term loans.5354## 5. Collateral advance rates5556| Asset | Advance rate on net available value |57|---|---|58| New equipment (invoice value, delivered and installed) | 75 % |59| Used equipment (appraised fair market value in continued use) | 60 % |60| Accounts receivable (< 90 days) | 75 % |61| Inventories (raw materials and finished goods) | 50 % |62| Real estate (appraised) | 65 % |6364## 6. Standard conditions for equipment term loans6566Movable hypothec registered at the RDPRM before disbursement; assignment of insurance; proof of the equity contribution before disbursement; annual financial statements within 120 days of year-end; financial covenants tested annually on the policy definitions (DSCR ≥ 1.25; total debt / EBITDA ≤ 3.50); no change of control without consent; personal guarantees as per the security summary.6768## 7. Credit memo contents6970A credit memo must contain, in this order: (1) borrower profile; (2) the request and its purpose; (3) financial analysis — three historical years and the pro-forma, with a ratio table compared with the policy thresholds and with industry benchmarks; (4) security and LTV; (5) risks and mitigants, including any inconsistency between the applicant's statements and the financial statements; (6) risk rating with justification by component; (7) recommendation, conditions and, where applicable, the counter-offer. The memo is written for the Regional Credit Committee, which does not re-read the file: every number used in the decision must appear in the memo.71