As a commercial lender, you know that one of the most important aspects of your job is making quality credit decisions. After all, lending money is a massive responsibility! You need to be confident that your borrower will be able to make repayments on time and in full. And on top of that, you need to identify deals that actually meet the minimum lending requirements.
But how can you develop more confidence in your decisions? That’s where FlashSpread comes in. FlashSpread is a leading tax return spreading software that can help you make better decisions in a flash.
From providing instant insights on deals that don’t meet minimum lending requirements to providing full, comprehensive financial reports with a click of a button, FlashSpread is here for you.
With this software, you can be confident that you’re making the best possible lending decisions for you and your business. Let’s take a look at everything else you need to know about decisions.
Table of Contents
What’s a Credit Decision?
Credit decisions are important for lenders because they help to assess the risks involved in extending credit to a particular borrower. By making a decision, the lender can get a better understanding of whether or not the loan is likely to be repaid on time and in full. This is important because it helps protect the lender’s interests.
Additionally, credit decisions can help lenders find new growth opportunities. By using software to make instant, error-free credit decisions, lenders can work with borrowers that don’t meet their minimum requirements to see if there’s a way to make the deal work.
By expanding lending criteria, lenders can increase their pool of potential borrowers and grow their portfolios.
Understanding The Five Cs of Credit
If you’re an industry vet, you may already be familiar with “The Five Cs of Credit.” However, if you’re just starting your career, we’ll go into more depth here.
Credit History
A borrower’s history is one of the most important factors to consider as a lender when making a credit decision. Most of the information you want regarding a borrower’s history is found by conducting a credit report inquiry.
A credit report is generated by bureaus that collect financial data about you. Some information you can find in a report include:
- Personal information
- Accounts
- Inquiries
- Public records
- Collections
- Miss payments
- Late payments
Capacity
Capacity is a major factor when considering whether a loan meets the minimum lending requirements or not. As a lender, you need to determine whether the borrower can comfortably afford the payments.
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A good indicator of capacity includes income, type of income, and stability.
This is where the debt-to-income ratio (DTI) of a borrower matters. DTI is the ratio of any new debt plus your current debt against your gross income.
Capital
Another factor to consider when making credit decisions is to also look at the borrower’s capital. Although household income will likely be the primary source of repayment, other capital to consider includes any savings, assets, and investments.
Conditions
Lenders must consider the loan’s purpose when determining if a borrower meets the minimum lending standards. Will the loan be used to purchase other property or a depreciating asset like a car? Will it be used to finance a first-home purchase, or will it finance a rental or vacation home?
Collateral
In addition to income, additional capital, and conditions, lenders must also check for collateral if it’s a secured loan. When dealing with a secured loan, like a home equity loan, borrowers put up some form of collateral.
After subtracting any existing debt from the collateral’s value, the remaining equity should play a significant role in your decision.
Bonus: Character
This one is a bonus. It’s not included in the officially unofficial five C’s of credit, but it’s worth mentioning—character. This refers to a borrower’s overall worthiness. It’s essentially a summation of the five C’s boiled down to a single point. Character is important because it looks at the borrower’s track record of paying bills on time and overall financial stability.
How Does Flashspread Help With Credit Decisions?
As you can see, coming to a quality decision about a borrower can be extraordinarily time-consuming and is no easy feat. That’s where FlashSpread comes in.
FlashSpread is the leading tax return spreading software that provides lenders with instant insights on deals to quickly determine if they meet the minimum lending requirements or not.
By using this automated tax return spreading software, lenders can avoid bad loans and minimize lost opportunities with a click of a button.
