A credit analyst is someone who assesses the creditworthiness of a borrower; a commercial credit analyst, specifically, works with business borrowers.
Commercial credit analysts underwrite credit based on the strength of the business, including the experience of its management team, any competitive advantages it has, its overall financial health, and prevailing industry and economic conditions that may influence loan repayment.
While not universally true, business borrowers are typically corporations and limited companies. These are separate, standalone legal entities from their owners, which adds a layer of complexity for commercial credit analysts.
A commercial credit analyst works with business borrowers to understand their creditworthiness.
Commercial credit analysts may work for direct lenders (like a bank), or they may work in corporations supporting trade credit decisions.
The most successful commercial credit analysts usually have a background in finance or accounting, good general business acumen, and strong modeling skills.
What is Credit?
When people hear the word credit, they typically think of credit extended by a bank (like a student loan or a mortgage).
A better way to think about credit is that it’s effectively “created” when one party receives resources from another without immediate payment. In this sense, a bank loan is indeed a type of credit – the resource is cash. But there is also trade credit; trade credit is when one party receives products or services from another on credit terms, meaning payment at some later date.
The receiver of credit is called the debtor (or borrower); the party that extends credit is called the creditor (or lender).
Skills to be Successful as a Commercial Credit Analyst
Underwriting personal lending is relatively homogenous. Commercial credit analysis, on the other hand, is quite complex as every borrower and its operations are unique.
Successfully commercial credit analysts require extensive training and a unique quantitative skillset. These generally include:
A background in finance or accounting in order to understand the client’s financial position and its operating results.
Strong general business acumen in order to understand the business itself, including how it’s differentiated in the market and what levers management can pull to grow and/or improve results.
Financial modeling skills in order to build and analyze company projections so the firm can understand what future cash flow and financing needs might look like.
Common Categories of Commercial Credit
There are a lot of different types of credit in the market, but in general, commercial credit is put into three main categories:
This is often referred to as working capital financing. As many businesses both buy AND sell on credit terms, they frequently experience what’s called a working capital funding gap.
Credit facilities like revolving credit lines, purchase order financing, and accounts receivable factoring are examples of operating credit that support businesses with their working capital funding gap.
Commercial clients also invest in long-term assets.
These include capital projects (like developing new technology); capital expenditures, often called CAPEX (like new property, plant, and equipment); and acquisitions of other businesses. As these are non-current assets, they’re financed using non-current liabilities – typically referred to as term financing.
While this is not an exhaustive list, the most common types of term financing are term loans, capital (finance) leases, and commercial mortgages.
As noted above, many businesses buy and sell on credit, and those businesses don’t give credit terms to just any customer. Many corporations also employ commercial credit analysts to assess the creditworthiness of their customers. This is trade credit.
Most trade credit is extended on open terms, with an invoice issued at the time of sale. Unlike a term loan, which is paid back in monthly or annual installments, invoices are generally settled in full at (or by) the payment due date.
Where do Commercial Credit Analysts Work?
Analysts with good credit acumen and a strong, foundational understanding of corporate finance have a lot of professional opportunities in financial services.
Prospective employers include:
Financial institutions – including commercial banks and credit unions.
Non-bank lenders – like factoring companies, equipment finance firms, and private real estate lenders. Many commercial mortgage brokerages also employ credit analysts.
Rating agencies – analysts assess publicly traded companies in order to price their debt instruments (like corporate bonds).
Corporations – as noted earlier, many companies employ commercial credit analysts to assess the creditworthiness of their B2B (business-to-business) customers.
Institutional asset managers – many firms hold significant stakes in debt securities and may employ credit analysts to manage risk(s) in their portfolio.
Private equity firms – many of these firms employ significant amounts of debt in their capital structures (think leveraged buyouts); strong commercial credit acumen is valuable in PE.
CFI offers the Commercial Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:
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