Key Monitoring and Underwriting Criteria for Business Loans

Business lending has risks. Two of the key risk areas for business lending include the adequacy of monitoring the performance of the portfolio of business loans and how to recognize business loans that become troubled and the adequacy of the underwriting of business loans from the perspective of the financial capacity of the business to repay the loan. 

Ensuring that business loans are adequately decisioned at the “front-end” of the business loan process and adequately being monitored after business loans are granted is vital to the success of any business lending program to ensure that loss risks are mitigated and that business loan portfolios are serving the membership.

For many lenders with long-time “seasoned” business loan portfolios, these criteria are already in place but for lenders with start-up business loan programs or lenders with underperforming business loan portfolios, these key criteria are important factors that the business loan portfolio to perform well. This session serves as a refresher for veteran business lenders and a guideline for newer business lenders.

Covered Topics:

    • The two key criteria that should be the focal point of every business loan: The financial capacity of the business loan to be repaid and how to risk rate and monitor business loans
    • The cash-flow of a business and how to determine if it is adequate to repay the business loan
    • What is DSCR and GDSCR? (Debt Service Coverage Ratio and Global Debt Service Coverage Ratio)
    • Important business lending underwriting considerations in the business loan write-up used to present the business loan for approval and decisioning including the component sections of the business loan write-up that the business loan officer should complete for presentation
    • Underwriting factors often overlooked regarding business loan appraisals including discounting the appraised value of business property that will secure the business loan, cash-flow trends and how these trends should impact the business loan decision, key documents that should be obtained (property insurance, borrower insurance, etc.) and more 
    • The 12 key financial ratios of businesses and how they are calculated
    • The adequacy of the business loan risk rating model
    • Factors that should be included in a business loan watch list
    • How business loans need to be monitored and who should monitor business loans

    Who Should Attend?

    This session serves as a refresher for veteran business lenders and as a guideline for newer business lenders.