• Outline the stages of the commercial lending process.

  • Explain loan origination, underwriting, and servicing.

  • Describe the role of due diligence and verification.

2.1 The Commercial Lending Lifecycle

The commercial lending process follows a structured lifecycle . The stages typically include: loan origination and application, underwriting and credit analysis, loan structuring and documentation, approval, loan servicing and monitoring, and collection or recovery .

At the origination stage, the borrower initiates the loan application and the bank collects necessary information. Underwriting involves assessing the borrower’s creditworthiness and the loan’s risk . Loan servicing manages the loan through its lifecycle, collecting payments and monitoring compliance.

2.2 Underwriting Analysis

Underwriting is the heart of the lending function. Lenders analyse a firm’s financial statements to determine the creditworthiness of loan requests . This process involves spreading and normalising financials, analysing income statements and balance sheets, and interpreting cash flow statements .

The goal is to assess the primary source of repayment: the borrower’s operating cash flow. This includes calculating key financial ratios such as Debt Service Coverage Ratio (DSCR) and Loan-to-Value (LTV) to quantify lending risk .

2.3 Due Diligence and Verification

Before loan funding, banks must conduct due diligence and verification . This includes third-party reports, entity verification, and pre-closing conditions. The loan closing and funding process walks through the closing meeting, document execution, and fund disbursement. Post-closing tasks protect the lender’s security interest . The loan approval process involves delegated lending authority levels and escalation protocols, with some credits requiring committee review vs. officer approval .

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