Saving the Bank With a Commercial Loan Pricing Model
Commercial Loan Pricing
According to a report released by the Office of the Comptroller of the Currency, commercial banks have recently increased credit risk standards in approximately 30 percent of commercial loan products. This means that many banks will accept riskier ventures for financing and will relax some underwriting guidelines in an effort to increase financing opportunities.
While this comes as welcomed news to many bankers who have found it almost impossible to approve any commercial loans with the current strict financing guidelines, these changes also increase the possibility for loan default and negative financial consequences for the bank. Now, more than ever, the use of a commercial loan pricing model will be important to any loan executive who wants to protect the bank and their bottom line from potential losses.
The world of commercial lending is always changing, and it has become an arduous task to remain familiar with new requirements. A commercial loan pricing model is helpful as a secondary source of underwriting as it can help identify certain discrepancies in a loan file. It provides a proven and defendable methodology for setting loan prices. It reduces risks, helps you make a better lending decision, and helps protect the bank from losing a tremendous amount of money in lost profit opportunities and discrimination suits.
Commercial loan pricing tools are also invaluable when attempting to choose the exact rate and term of your commercial loans, especially when several loans are packaged together. Many bankers do not realize that a small percentage of basis points missed can cost the bank thousands of dollars in revenue and the same in lost commissions for the loan executive. Using a commercial loan pricing tool takes the guesswork out of pricing your loans and will help to ensure the bank structures financing with maximum profitability.
These models are easy to use and they will take a tremendous amount of burden away from the lender in processing time and analytical efforts. In today’s financial climate, a commercial loan pricing system can make all the difference in creating a profitable lending year for you and your bank.
If you would like to learn more, please feel free to contact us.