PLEASE RAISE YOUR HAND IF YOU’RE EVER WAS DENIED FOR CREDIT FROM A COMMUNITY BANK. When you or your company applied for credit, you probably had no idea what you were going up against. The criteria and requirements are numerous to the point they are overwhelming. It’s a daunting task to complete these required documents – never mind knowing the credit policies the bank will use to evaluate your qualifications. We will help you to understand the requirements and the criteria to move through the credit lending maze.
GENERAL CREDIT UNDERWRITING CRITERIA POLICY
Well, there’s good news: There are eight general credit underwriting criteria (see below) you will need to know. This will help you with a better understanding how the Lender will underwrite your request. With the general underwriting knowledge at your disposal, you can ensure yourself that the Bank final decision will make sense. Here are the eight criteria:
1. Borrower/Industry Analysis
2. Management analysis;
3. Guarantor analysis;
4. Understanding the loan purpose/loan structure;
5. Financial analysis/repayment capacity;
6. Sensitized Projections
7. Collateral analysis/insurance considerations; and
8. Documentation and legal considerations.
This topic is designed to provide an overview of general underwriting considerations and to suggest a systematic approach for analyzing and structuring credit requests.
Download the free credit underwriting guidelines that will provide some of the considerations that are factored into the underwriting decisions. Ready? Let’s dive in on Underwriting Criteria 1!
GENERAL CREDIT UNDERWRITING CRITERIA 1 (Must go to website to get this information)
While some of the consideration listed below may not always be relevant or applicable, most are appropriate for the majority of credit requests. Therefore, the following should typically be factored into underwriting decisions:
It is vital that Bankers should know their customers and:
- Perform a due diligence on new borrowers to ensure that such parties are in fact who they represent themselves to be;
- Understand the legal entity structure of your entity (for example, sole –proprietorship, a general partnership, a limited liability company);
- Understand the customer’s business, products/services, and competition;
- Evaluate the borrower’s handling of loans/trade debt with other creditors to gauge their capacity and willingness to repay the Bank obligations; and
- Understand the risks inherent in the borrower’s industry.