What is Commercial Lending Training?
Commercial lending training targets current and aspiring credit professionals who are involved in lending money to corporate borrowers. The training equips these lenders with important skills and knowledge around how to conduct financial analysis and credit underwriting. Lenders need to determine a borrower’s ability to effectively utilize the funds to generate additional cash flows and meet debt obligations.
Commercial lending is a borrowing relationship where a financial institution (banks, credit unions, equipment finance firms, etc.) extends credit to a business or a corporate entity at a predetermined interest rate. Consequently, commercial lending training involves providing training to credit professionals on how to assess and price risk for a potential borrower.
- Commercial lending training involves equipping credit professionals with skills required to assess the financial strength of an entity to determine their eligibility for credit.
- Commercial lending training can be offered through online classes, traditional institutions, or self-study.
- The training teaches credit professionals how to conduct financial analysis, assess credit risk, and understand commercial loan terms.
Areas Covered in Commercial Lending Training
Commercial lending training covers the whole process, from collecting information from potential customers to approval and the subsequent disbursement of funds. Training participants are introduced to the basics of measuring credit risk, analyzing financial statements, and interpreting credit reports to determine the eligibility of the borrower for the loan. The goal is to find deserving businesses with the capacity to utilize the funds effectively while reducing the risk of incurring losses for the lender.
The following are the key areas covered in commercial lending training:
1. Credit Risk Measurement
Credit professionals learn how to measure credit risk and handle loans with different levels of risk. The training gives credit analysts a greater understanding of the entire lending process, from assessing the level of risk involved in lending to a customer, the probability of default, and the amount of loss that the lender would suffer in case of default.
Credit analysts also learn how to assign a risk rating to the potential borrowers, depending on a variety of qualitative and quantitative factors. The credit rating assigned determines whether or not the lender will extend the credit to the borrower, and at what price. A loan application from a client with a high-risk rating may be rejected, or the lender may decide to extend credit at a higher interest rate that compensates for the higher level of risk.
2. Commercial Lending Terms
The training covers the terms of commercial loans that lenders provide to corporate borrowers. Loan structures are usually either classified as short-term or long-term borrowing.
A long-term commercial loan requires a repayment period of greater than one year, but it’s frequently between five and 20 years. These loans support the acquisition of long-term assets, meaning assets that will have a useful life greater than one year. When providing a commercial loan to a corporate borrower, a lender may charge a prepayment penalty, which guarantees a fixed return on the loan.
Short-term credit, sometimes called working capital financing, supports short-term assets. They are assets like accounts receivable and inventory, which will be converted to cash within the current fiscal year. SMEs can borrow short-term funds to finance temporary deficits as well, like a shortfall in working capital or to pay urgent operating expenses such as salaries and utility bills while awaiting cash inflows from accounts receivable.
3. Credit Assessment
Credit assessment refers to procedures undertaken by financial institutions to determine the ability of a corporate borrower to honor their debt obligations. Commercial lending training enables learners to understand key credit investigation procedures. The procedures are used to verify a client’s actual income, cash flow, the value of collateral, as well as their credit history. Credit assessment enables the lender to determine the financial health of an entity and its ability to meet the debt obligations within the required period.
If the lender finds any of the provided information to be false or inaccurate, it can either reject the application or request better financial statements (perhaps audited) that provide more accurate financial data. Credit assessments may also involve visiting the client’s business location to confirm the existence of certain assets like inventory and equipment. For example, the credit analyst can verify that the collateral provided actually exists and if the assigned value of the asset equals the appraised or standard industry valuation.
4. Financial Statements
Financial statements such as the balance sheet and cash flow statement are some of the documents required during credit evaluation. Commercial lending training equips credit professionals with skills on how to evaluate key financial statements to determine the financial strength of an entity and its ability to generate sufficient cash flows to service the debt.
For example, the lender can use the financial statements to determine whether an entity has enough liquidity to make principal and interest payments.
Equipping credit professionals with the skills required to analyze key financial statements and make conclusions can help protect the lender from extending bad commercial loans and help to distinguish between lower risk and higher risk borrowers.
Want to learn more about commercial loans, and advance your career as a world-class Commercial Loan Broker or Commercial Loan Officer? Use the form below to learn more about CFI’s Commercial Banking & Credit Analyst certification.
Learn More About Our CBCA™ CertificationSee how CFI's Commercial Banking & Credit Analyst (CBCA™) certification can help you advance your career in Commercial Banking and Credit Analysis. Download our CBCA™ program brochure to get an overview of our key course offerings.
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