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Ways to Improve the Profitability of Commercial Loans at Banks

Banking profitability and loan pricingWays to Improve the Profitability of Commercial Loans at Banks

Profitability of Commercial Loans at banks

The time is right to consider ways to improve the profitability of commercial loans at banks.  According to a recent article in the Wall Street Journal, after suffering through a recession and a period of slow growth, companies have kept their balance sheets in good order and are preparing to borrow for expansion.

According to the Peak Corporate Network, banks can use commercial evaluations to improve the cost effectiveness of lending.  Small value lending helps reduce the cost of the evaluation for the borrower without cutting into the bank’s interest margins.  Some situations require costly and time-consuming appraisals, but bankers may find opportunities to substitute a commercial evaluation for “assets and borrowers that are performing well and that have strong track records.”

Increasing a line of credit can also add to the cost effectiveness of commercial lending.  Since incumbent lenders “can use commercial evaluations for modest increases in credit lines for existing borrowers, these lenders have an inherent advantage over other lenders who may need to conduct a full appraisal to originate a new loan to that borrower.”

Before entering into efforts and expenditures required for negotiation, banks could avoid unnecessary costs by conducting a relatively inexpensive commercial analysis before the negotiations.  A good understanding of the assets involved will reveal if a particular loan is feasible. The bank can then proceed with confidence and assurance that time and expense in negotiation is not wasted.

Commercial evaluations do not apply to every situation, but in some instances, bankers can use this tool to make commercial loans more profitable.

The Hurdle Group specializes in big bank technology that all banks can use.  If you want to talk more about this, or anything else, please contact us. Thanks.

Alan Lee
Podcast: www.TheSchoolOfBanking.com