Commercial Loan Underwriting Problems in Lending
A year has passed since the loan crisis broke out in the United States, and almost all the banks continue to take measures to adjust requirements for loan borrowers so as not to repeat the mistakes of their colleagues. Artificial increase in the availability of loans for the population is the main reason for the loan crisis in the United States. Today, a thorough assessment of loan borrowers is an important task that each bank solves in its own way, but in compliance with the basic generally accepted criteria.
Why Commercial Loan Underwriting is Important?
Commercial Loan Underwriting is a check by a bank of a client’s solvency and creditworthiness. Borrower underwriting is a very complex and responsible procedure for the bank to assess the likelihood of repayment or non-repayment of the requested loan. The loan underwriting system involves studying and analyzing the solvency or refusing to provide a loan. However, there are also compromise solutions when the bank agrees, but not for the amount or terms that the borrower expected.
A wide range of banking divisions is involved in lending to individuals in the bank: legal service, security service, risk management, credit management, etc, which indicates the degree of complexity and laboriousness of the loan underwriting process. Each bank has its own method, but when assessing the likelihood of loan repayment, the main criteria are established:
- the client’s ability to repay the loan (assessment of the borrower’s income level);
- his willingness to repay the loan (analysis of the borrower’s credit history);
- the value of the pledged property as sufficient collateral for the loan (analysis of results independent property appraisal).
Types of Loan Underwriting
There are two types of underwriting: automatic (scoring) and individual.
- Automatic verification is an express assessment of the borrower’s solvency in consumer lending for small amounts. This appraisal process is automated, and the loan decision is made using software. A simplified check lasts from 5 minutes to 1 hour.
- Individual underwriting is resorted to in the case of lending for large amounts (car loans, mortgages, Commercial loan etc.). To assess the borrower, several bank services are involved: credit, legal, security services, which check all the information provided more carefully, so the term for considering a loan application can take from 1 to 10 days. This is a labor-intensive procedure that requires special qualifications of bank employees.
The essence of automatic underwriting is to check each document by loan document software provided by the borrower directly to the commercial loan underwriter online, and you will get a complete credit score in just a few minutes without any risk and failure.