5 Steps for improving commercial loan presentations

By: Sageworks

Breaking into the commercial lending paradigm to improve your commercial loan presentations can be difficult, says Gary Welsh, Banking Services Manager at Condley and Company, a leading bank advisory and full service accounting firm. In Part 2 of this guest column, Welsh provides five suggestions to help get things right the first time.

 
The commercial lending paradigm: Suggestions for adoption

By Gary Welsh

 

In my last post, “Beginning with the end in mind,” I discussed how a powerful commercial lending paradigm leads to clear, complete and concise commercial loan presentations. The model increases your prospects for success with both your borrowers’ business lending needs and your bank’s commercial credit culture. Given that this might be an entirely new way of thinking, here are a few suggestions to help you break into a new paradigm of beginning with the end in mind to get your commercial loan committee presentations, cash flow analysis and loan closings right the first time:

 

  • • Personal and Corporate Guaranties. You have to know exactly who will provide guaranties for each loan request in order to prepare an accurate global cash flow analysis. How many loan officers rely on interviewing their prospective borrowers regarding ownership structure? Those that do rely on interviews are often surprised when the organizational documents come in and reflect a more complicated structure than assumed. Identify and document ownership, guarantors and signers earlier in the commercial loan application process.

     

  • • Closing Costs. In order to determine the amount of cash the borrower brings to the closing table you have to understand all of the commercial closing costs. Determine what closing costs will be rolled into the final loan amount before you submit your loan presentation. Unanticipated closing costs may prompt a loan resubmission to increase the proposed loan amount, and change the initial cash flow analysis and debt service coverage.

     

  • • Borrower’s Down Payment. Ascertain the borrower’s source of funds for the down payment before you prepare the initial cash flow analysis and loan presentation. Again, this is simple. However, if the borrower’s source of funds for the required down payment are not documented initially, then the risk of a possible loan resubmission to correct the loan amount, cash flow analysis and debt service coverage increases substantially.

     

  • • Loan Disbursement. Think about how the loan will be disbursed at closing while you are preparing the initial commercial loan presentation. Will the way you intend to disburse the loan proceeds be consistent with your core system parameters? What if funding is delayed and disbursement costs increase? Develop a loan disbursement plan. Include paid-outside-closing backup plans for system delays and disbursement contingencies to be paid by the borrower.

     

  • • Loan Structure and Use of Proceeds. Together with the above described suggestions, the final loan structure should be itemized with a sufficient level of detail. Check that the loan proceeds are adequate to complete the loan transaction in light of your borrower’s loan purpose and closing costs. Constructing a basic commercial closing statement within the loan presentation helps commercial loan officers broaden their expertise across diverse commercial transactions.

     

Skillful circumspection, in applying these suggestions, may be the key to improving your commercial lending efficiency and profitability.

For more information on avoiding lending inconsistency, making profitable credit decisions and managing risk, read this whitepaper: Inconsistency with Financial Institution Data & Analysis

Gary Welsh is a manager in the banking services group of Condley and Company LLP, where he provides loan review and compliance services for the Abilene, Texas firm’s clients.
This general article is not intended to be a substitute for sound legal advice provided by experienced and competent legal counsel nor is it intended to apply to complex loan structures or more technical forms of lending such as construction lending.
About the Author

Sageworks

Raleigh, N.C.-based Sageworks, a leading provider of lending, credit risk, and portfolio risk software that enables banks and credit unions to efficiently grow and improve the borrower experience, was founded in 1998. Using its platform, Sageworks analyzed over 11.5 million loans, aggregated the corresponding loan data, and created the largest real-time database of private-company financial information in the United States. The company was acquired in 2018 and is now part of Abrigo.

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