Banque Commerciale de l'Outaouais — Commercial Credit Policy CP-2026-01 (extract)
Applies 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.
1. Credit analysis standard
Every 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.
2. Ratio definitions (mandatory — no other definition may be used in a credit memo)
- EBITDA = net income + income taxes + interest and bank charges + depreciation and amortisation, as reported. EBITDA is not adjusted for rent or operating lease expense.
- Cash taxes = income taxes paid as reported in the statement of cash flows (supplementary information).
- Unfunded capital expenditures = purchases of property, plant and equipment during the year that were not financed by term debt or capital leases.
- Debt service = interest and bank charges + scheduled principal repayments on all interest-bearing debt.
- Historical years: interest as reported in the income statement + principal actually repaid during the year per the statement of cash flows.
- 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.
- 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.
- 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).
- 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.
- Total debt / EBITDA = total debt ÷ EBITDA of the same fiscal year (pro-forma: latest fiscal year's EBITDA).
- 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.
- Total debt / tangible net worth = total debt ÷ (shareholders' equity − intangible assets − amounts due from shareholders).
- 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.
3. Underwriting standards (all must be met on the pro-forma view for approval as proposed)
| Standard | Threshold |
|---|---|
| Pro-forma DSCR | ≥ 1.25 |
| Pro-forma total debt / EBITDA (operating leases capitalised) | ≤ 3.50 |
| Current ratio (latest fiscal year, policy basis) | ≥ 1.20 |
| LTV on equipment term loans | ≤ 75 % and lending value ≥ 100 % of the facility |
| Term and amortisation of equipment loans | ≤ 10 years and ≤ the useful life of the equipment |
| Equity contribution to the project | ≥ 15 % of project cost, from the borrower's or shareholders' own funds |
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.
4. Risk rating grid (1 = strongest, 7 = weakest)
The 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:
| Rating | Pro-forma DSCR | Pro-forma total debt / EBITDA | Indicative pricing (term loans) |
|---|---|---|---|
| 1 | ≥ 2.50 | ≤ 1.50 | prime + 0.50 % |
| 2 | 2.00 – 2.49 | 1.51 – 2.25 | prime + 0.75 % |
| 3 | 1.50 – 1.99 | 2.26 – 2.75 | prime + 1.25 % |
| 4 | 1.15 – 1.49 | 2.76 – 3.50 | prime + 1.75 % |
| 5 | 1.00 – 1.14 | 3.51 – 4.50 | prime + 2.50 % |
| 6 | 0.90 – 0.99 | 4.51 – 5.50 | prime + 3.50 % |
| 7 | < 0.90 | > 5.50 | not priced — refer to Special Loans |
BCO 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.
5. Collateral advance rates
| Asset | Advance rate on net available value |
|---|---|
| New equipment (invoice value, delivered and installed) | 75 % |
| Used equipment (appraised fair market value in continued use) | 60 % |
| Accounts receivable (< 90 days) | 75 % |
| Inventories (raw materials and finished goods) | 50 % |
| Real estate (appraised) | 65 % |
6. Standard conditions for equipment term loans
Movable 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.
7. Credit memo contents
A 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.