Loan Committee

What a loan committee does

Lending authority at a bank or credit union is tiered. An individual lender can approve up to a stated limit alone. Above that, approval moves to an officers' committee, then a senior or executive committee, then in some institutions to a committee of the board.

The committee reviews the credit memo, questions the analysis, and either approves the request as presented, approves it with conditions, defers it pending more information, or declines it.

Who sits on one

Composition varies with institution size. At a community bank a CRE credit above the individual limit typically goes in front of the chief credit officer, the chief lending officer, one or more senior lenders, and often the president. At smaller institutions the committee may include directors who are themselves local business owners, which is why the memo has to be readable by someone who is not a credit professional.

What actually gets asked

Committees rarely re-run the arithmetic. They test the assumptions underneath it: why this vacancy factor, what happens if the anchor tenant leaves, what the sponsor did in the last downturn, what the guaranty is worth, whether the appraisal's comparable sales are really comparable, and what the exit looks like at maturity if rates are higher.

Requests fail more often on an unexamined assumption or an unanswered question than on a ratio. A memo that names its own weak points and addresses them tends to move faster than one that hides them and gets found out in the room.

Cadence and its commercial cost

Most committees meet on a fixed schedule, weekly or biweekly. A deal that misses the package deadline waits for the next meeting, which can add a week or more to a decision the borrower is timing against a purchase contract. Where a lender's turnaround is genuinely slow, the cause is usually the days spent assembling the package rather than the meeting itself.

Related terms

Credit memo, policy exception, DSCR.