Commercial loan pricing model
According to an article published by the Wall Street Journal, lending to commercial and business entities may outrun residential lending for the first time since the 1980s. In fact, the rate of commercial lending rose 8.5% compared to previous numbers a year ago, and approximately 21% of the loan balances owed to banks in the US were commercial loans.
This is great news if your business is commercial banking. However, how can you be sure you are properly structuring your commercial loans for maximum profitability?
Using a commercial loan pricing model has become a welcomed and necessary tool in the world of commercial banking to ensure that the appropriate rate and term is selected for both the benefit of the client and the bank. These pricing models add a level of convenience for the banker because they are quite simple to use, and they automatically update to conform to the ever-changing requirements of commercial lending.
In the past, a commercial banker could easily spend hours analyzing the financial benefit of a multitude of rate and term scenarios for only one commercial loan. This was an almost impossible job to do to efficiently, especially if you had a desk full of commercial loan applications.
The old way of doing things has also proven to be very costly. One small aspect overlooked could cost the bank thousands in fees and the same for the banker in lost commissions.
Fortunately, new commercial loan pricing models make finding the perfect scenario of rate, term and other critical loan factors effortless. In fact, changing a loan by a mere basis point could result in thousands of dollars earned that would have been otherwise left on the table.
This certainly makes a banker’s work more productive and efficient, and it helps the bank perform better as a whole when financials are presented to the board of directors, investors and other potential overseers.
Perhaps the greatest benefit of a commercial loan pricing model is the assistance it provides in decision-making for bankers. The produced scenarios can help identify potential pitfalls in some loans while increasing lending confidence in others. Utilizing this advanced technology can also aid in helping your institution reach potential lending and profitability goals.
For more information on how a commercial loan pricing model can help your banking practice, feel free to contact us.