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What Is the Process For Approving A Commercial Loan?

by Chris Crabtree

Your lender will collect the appropriate financial information from you to underwrite the loan and assemble a loan credit package that addresses the 5C’s of credit:

• Character – Do we believe that the borrower will pay us back and how do we support this statement?
• Capacity – Does the borrower have the ability to pay back the loan?
• Capital – Review of the borrower’s financial position. Is borrower liquid or leveraged?
• Collateral – What the borrower is offering to secure the loan in case of default.
• Conditions – An example would be that the loan amount to value of collateral cannot exceed 80%.

Once the relevant information is gathered for the transaction and proposed loan amount, it will be routed through a credit approval process. At some banks, various types of loans are inputted into a program and variables scored. An algorithmic decision is then made based on the numbers, scores and ratios. But in most cases the approval will be subject to the review and decision of a credit approver. That may include a single credit officer, or in many cases a review, discussion, and vote by a credit committee.

After an approval is obtained, your lender will present those approved terms for the transaction and if accepted, the loan can be documented, executed, and funded.

Answers provided by Chris Crabtree, SVP, Commercial Banking at Simmons Bank. He can be reached at 314.854.4516 or chris.crabtree@simmonsbank.com.

Submitted 2 years 275 days ago
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