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How to Maximize Return From Your Commercial Loan Pricing

How to Maximize Return From Your Commercial Loan Pricing

Commercial Loan Pricing – Consider all the variables other than the interest rate.

Since the time of the Great Recession commercial loans have been a significant vehicle of profits and expansion for banks.  This is especially true in more recent times.  With the condition of the household lending market, banks have been turning more and more towards the commercial lending market for the lion share of their profits.  Banks are looking for more and more ways to generate profit from their commercial customers.

This creates intense competition as banks battle each other to secure the greatest profits from the commercial sector. In this environment it is even more important that you meet the goals of the bank and expectations of the stockholders.  This type of pressure places more scrutiny on how to maximize the profit from commercial loan pricing.

One way banks have found to maximize the return on their pricing is the use of loan pricing systems.  The right system can significantly increase their competitive standing through pricing and make the whole process much simpler.

A one-size-fits all approach isn’t the most effective when it comes to such a fluid market as commercial lending.  This being said loan pricing systems allow you to enter in what your profitability goals are and your target ROA’s and consistently price your loans to meet those goals.

It also provides your lenders with much more agility in the negotiation process.  Not only can they negotiate based on interest rates, but they can also look at different interest rates based on different terms, or the bundling of several loans while staying within the institution’s ROA objectives.

A pricing system creates a framework to aid in negotiations, training, and decisions.  Inconsistencies or inefficiencies in pricing can leave serious money on the table at a time of intense economic competition. Please contact us, and let us put our years of experience to work for you.

Alan Lee