How Do Lenders React?

When you think of a lender, you first think of a lending officer or a financial sales person or a relationship manager – the relationship-building people. However, they are not the decision makers when it comes to final credit decisions or, sometimes, even the final structure of the transaction.

The decision makers are the credit officers – often otherwise referred to as the underwriters. They evaluate the project structure and pricing based upon the merits of the project and in the context of the lenders credit criteria, credit policies and risk appetite. They use their experience, coupled with a set of parameters that have been presented, massaged and approved by a senior-level credit committee. The parameters the underwriters follow are usually well known by the sales team (sales management generally has a great deal of input into these parameters), so surprises should be limited.

However, when something like a Chapter 11 filing of a major lender occurs, senior-level credit committees of the remaining lending sources begin a review process of their current parameters and generally issue short-term recommendations to tighten things up until the reviews have been completed and the market has stabilized. As a purchaser of financing services, you end up with a more structured transaction and may pay higher interest rates to compensate for the perceived higher market risk.

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