Commercial Credit Analysis
Commercial credit analysis helps financial institutions properly assess commercial borrowers’ creditworthiness. Efficient credit analysis is key for informing commercial lending decisions, mitigating risk, and meeting borrowers’ needs.
Analyzing Commercial Credit
Effectively analyzing commercial creditworthiness is a multi-faceted endeavor that involves:
- Qualified analysts, who are experienced at spreading financial statements and using modern analytical and reporting tools.
- Reliable technology, specifically credit analysis software (or, in some cases, spreadsheets).
- Accurate data, usually sourced from borrower-provided income statements, balance sheets, and other financial reports.
- Efficient communication between teams. For example, credit and loan teams work together to ensure timely responses to borrowers’ requests without losing sight of the financial institution’s objectives.
Some financial institutions rely on a single team for commercial credit analysis and loan management. Larger institutions, however, typically have dedicated teams that specialize in commercial credit analysis. Credit teams use borrowers’ data to calculate ratios, such as debt service coverage and liquidity, which are important for determining a commercial loan’s viability.
Challenges with Commercial Credit Analysis
The need to collect documentation from borrowers—even after a loan closes—poses numerous challenges for banks and credit unions. Failing to follow up in a timely manner can lead to missing and expired documents. Such exceptions make it difficult for analysts to properly analyze borrowers' financial health and assess their ability to repay. Furthermore, unresolved exceptions can lead to issues during audits and exams.
Improving a financial institution’s document tracking workflow can reduce exceptions and accelerate commercial credit analysis. Migrating from ticklers or spreadsheets to a system like AccuAccount, which offers imaging and exception tracking, can also be a wise decision. Providing reliable access to credit documentation enables analysts to easily access financial data and run their calculations. Unlike paper documents, which can only be in one place at a time, imaging systems allow multiple users to view the same document simultaneously—further expediting the analytical process.
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