Learning Objectives:

  • Apply risk-based pricing to commercial loans.

  • Conduct sensitivity analysis to assess repayment capacity.

  • Structure loans to mitigate identified risks.

7.1 Risk-Based Pricing

Risk-based pricing links loan pricing to the assessed credit risk. Higher-risk borrowers pay higher rates to compensate for the increased probability of default . The Campbell University course covers “risk-based pricing of commercial loans” . The SMU Academy course emphasises understanding the “relationship between risk-based pricing and facility structuring” .

7.2 Sensitivity Analysis

The Illinois Bankers Association course covers “Sensitivity Analysis and Projecting the Ability to Repay” . Sensitivity analysis evaluates how changes in key assumptions (e.g., interest rates, sales volume, input costs) affect the borrower’s ability to service debt. This helps assess the borrower’s vulnerability to adverse events.

7.3 Structuring to Mitigate Risk

The Illinois Bankers Association course covers “Structuring the Loan and Loan Agreement to Mitigate Risk” . Effective loan structuring addresses identified risks through appropriate loan terms, pricing, and credit enhancements.

 
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