By Theresa Witham
During a recent session of the CUES Business Lending Premier Networking Group, Jim Devine, founder, chairman and CEO of Hipereon, Inc., Redmond, Wash., fielded a question about who should sit on the credit review committee. This committee reviews the business loan applications and decides who to approve. The business lender or underwriter submits an underwriting package to the committee for each loan and they review it and make a final credit decision.
In most cases, senior managers, such as the CEO, CFO and COO, end up on the business loan review committee, he said. They are on the committee because they are senior staff members, not because they possess significant commercial lending or related credit administration experience. In fact, many of the senior staff members who serve on the business loan committee have little, if any, commercial loan underwriting experience. That is a shortfall, he said.
“We recommend that all staff members sitting on the business loan review committee should attend training programs that address both underwriting and credit administration,” Devine said. “Without prior commercial lending experience or training, the ability to effectively screen prospective business credit applications is a big issue.”
Devine and business partner Bob Hogan, founder, president and COO of Hipereon, have been called on by the NCUA to review business loan programs at credit unions where NSUA has discovered problems in the loan portfolio. In some of these situations, the loan review committee decided to approve loans that their underwriters recommended declining. Sadly, many of these loans went into non-accrual status and eventually were charged off. In some of these cases, the CU ended up in conservatorship.
With average business loan sizes now exceeding $250,000, no credit union can afford to make any lending mistakes of consequence. Staff underwriters need to be well trained and the business loan review committee members need to be capable of assessing and screening the individual business loan applications. They have to make competent final credit decisions and assure that every business credit decision is made in compliance with underwriting policies and regulations.
Who currently serves on your business loan review committee? Do they have the requisite experience and training to help your credit union make well-informed MBL decisions? What does your CU do to train your business loan review committee?
If you find your credit union is deficient in this area, consider the CUES School of Business Lending. This three-part program, led by Devine and Hogan, will give your CU executives enough experience to make the right decisions.
Theresa Witham is a CUES editor. Subscribe to the free, quarterly Business Lending Edge newsletter.
