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Business lending vs. consumer lending: How is the evaluation process different?

October 10, 2013
Read Time: 0 min

As part of Sageworks’ ongoing video series addressing some of the challenges and questions regarding credit analysis, Garrett Morris, senior risk management consultant at Sageworks, explains the similarities and differences between business and consumer lending analysis.

From the video

Member business lending or commercial lending analysis is different from consumer loan analysis, although they often share a few of the same assessments. For example, before processing both commercial and consumer loans, we’re really evaluating whether the borrower can repay the debt. We’re going to be assessing either the business’s or global relationship’s debt service, and if it’s a consumer loan situation, we’d assess the individual borrower’s debt service. Cash flow is the ultimate driver in that decision and is one of the most critical factors both in commercial and consumer loans.

Compared with consumer loans, however, commercial loans are maybe a little more complex; the analysis needs to be a little bit more in detail. Aside from just looking at the borrower’s ability to repay the debt, we also want to assess the business’s position as a whole. Liquidity analysis, profitability analysis, growth analysis as well as leverage analysis are important when evaluating a business entirely to make sure that the business stands well and is performing adequately as it should. In addition, incorporating industry averages and comparisons to examine the businesses against their peers is an important way to determine the strength of the business.

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About the Author


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

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