Business loan turned down in committee

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>Business loan turned down in committee
Posted by: Mark P. Dec 3 2003, 06:05 PM
Three weeks ago I requested a loan from a bank where I have had a business checking account for two years. Today the vicepresident called me to tell me that the loan had been declined in loan comittee.

Can you tell me why the bank decided to turn me down?

I am a good customer and have been with this bank since I moved my store to its new location.
Posted by: loanuniverse Dec 3 2003, 07:42 PM

The loan officer was referring to the process of presenting your loan for approval. While the process does seem a bit complicated. It is not once you know the steps that your loan request takes within the bank. While some banks allow certain freedom of action to their lending officers, where they can prepare the approving documentation and approve the loan by themselves under their designated “lending authority”, most institutions require the lender and their immediate supervisor to approve any loan. In other cases when the amount is big enough, the requests goes to committee to get approved. This is pretty much the way that all banks work, but there are exceptions. The first bank that I worked for required all loans to be presented to committee. This was a serious competitive disadvantage when talking about small loans under $100,000.

So that you can better understand let me give you a breakdown of the process at a typical midsize regional bank using a hypothetical loan for $600,000.

1) You meet with the lending officer and request a loan for $600,000 to purchase a building for your company.

2) The lender is a Vice President and has a “lending authority” of $200,000. His boss the Senior Vice President has a “lending authority” of $500,000. Everything higher than that needs to go to committee. This means that your request will be presented for approval there.

3) The lender takes your request and brings it to the credit department where the financial information is given to a trainee. Trainees are recent college graduates that will take that financial information and spread it using a specialized software package. They might also do some industry research and background research.

4) Your request is then assigned to a credit analyst or someone like me a senior credit analyst. Some banks when they are big enough can afford to have specialized analysts in different areas such as “Real Estate Construction” or “Eximbank Loans”.

5) The request is transformed into a package consisting of a credit analysis and supporting information and given back to the lender.

6) Your lending officer adds to the package a summary and other supporting information and goes to committee to request that the loan be granted.

In your case the members of the lending committee by a majority decided that your loan was not an acceptable risk. It obviously was something that your lending officer believed in enough to take to consideration, but his lending philosophy might be different than the one of the members {lending committees are made up of the top management of the bank}. Was the reason why your loan turned down because of the financial information? The industry of your business? The ability of your lending officer to explain the questions of the members of the committee? I can not give you the answer to your question, only your lender can.

Author: Commercial Loan Underwriter