Lender Mistakes in Commercial Loans

Executive management and lenders often attribute portfolio loan problems to borrower mistakes or failures in management. But in many instances, it is the lenders who have contributed to the borrower’s problems. We all make mistakes, especially if we’re in a hurry to meet some deadline, to resolve a problem, to satisfy some demand.  However, Will Rogers observed:  “The man who never makes a mistake must get tired of doing nothing,” so maybe we can learn to do better by avoiding others’ errors. Not every business loan starts out as a good loan.  Borrower expectations, competitive pressure, lender inexperience, and undertrained support staff contribute to errors along the way from converting a prospect into a borrower. This session will offer you a checklist of loan mistakes to identify, avoid, and correct.

Topics covered in this session

 Biggest errors as we assemble these big 10 elements of a deal:

• Borrower—do you have enough information to identify the borrower, assess the borrower’s financial condition and performance, check credit track record, evaluate borrower’s industry and economic outlook, assess credit risk?
• Purpose—is what the borrower wants to do with the loan legal, ethical, and compliant with the bank’s credit policy?
• Amount—Is the amount requested enough to accomplish what the borrower wants to do?  Has the borrower itemized what the funds are to be used for?
• Pricing—Is the loan priced high enough to cover the cost of funds, operating expenses, credit risk premium and still generate a satisfactory return to the bank?
• Term and amortization—does the proposed term and amortization comply with bank policy, has the borrower provided cash flow data showing its ability to meet debt service requirements and repay the loan in full?
• Collateral—Is there a reliable source of value on the collateral to calculate an acceptable loan-to-value, is it insurable, perfectible, physically verifiable?