Large corporate borrowers tend to attract many bankers’ attention, but the fact is that many banks find their markets are comprised of smaller, privately held firms.  In fact, these smaller firms number well over 20 million and provide 60% of American jobs.

The challenge of lending to smaller borrowers is how to balance the cost of acquiring them—evaluation, underwriting, approving, monitoring—with the lower profitability inherent in these loans.  Smaller loans have proven to be riskier—the probability of default increases as the size of the borrower decreases and the repayment term increases.

The purpose of this Live Course is to provide practical guidance on finding that balance and generating prudent profitability.

Agenda:

• Credit considerations in lending to smaller businesses
• Fitting small business lending into the bank organization
• Establishing standardized credit and operations processes and policies for smaller business lending (SBL)

Specific Areas Covered:

• Credit considerations in lending to smaller businesses
• Most common types of borrower requests
  • Lines of credit
  • Term loans
  • Commercial real estate transactions

• Typical underwriting criteria—global cash flow and DSC, acceptable collateral and LTV, guarantees, minimum credit scores
• Standard “6-pack of smaller business loan products—line of credit, term loan, equipment lease,  commercial real estate mortgage, letter of credit, purchase card
• Fitting small business lending into bank organization
  • Reporting into commercial vs. consumer side
  • Integrating standardized underwriting with decentralized lending
  • Identifying infrastructure needed to support smaller business lending

• Standardized credit and operations processes and policies for smaller business lending
• Scope—market served, transaction/exposure limit
• Roles and responsibilities—relationship managers, analysts, underwriters, loan documentation, loan operations, credit administration
• Loan processing—financial information requirements, credit package
• Analysis and underwriting—time in business, appropriate guarantees, satisfactory credit history, minimum credit scores, minimum DSCR, collateral LTV’s, maximum term and amortization, minimum liquidity, risk rating,  appraisal and environmental requirements
• Conditions and covenants—bank depository account, no additional borrowing, no liens, taxes current
• Approval—pricing, policy exceptions, loan doc exceptions, overrides
• Loan documentation—demand vs. time note, standardized loan docs vs. attorney-prepared docs,
• Monitoring—asset quality, risk rating migration, credit score changes, stale annual reviews, continuous monitoring, policy exceptions, loan doc exceptions, stale risk ratings
• Problem asset management—bankrupts, deceased borrowers, all substandard loans, 90-day past-dues, non-accruals, charge-offs, OREO
• Pricing and policy discipline