ContractsCounsel Logo
Home Blog Commercial Loan Review

Jump to Section

A commercial loan review involves obtaining and analyzing financial information, including other factors considered for the comprehensive review process.

A commercial loan is a short-term loan given to business organizations by a financial institution to fulfill monetary requirements. Most organizations use the loan to fund capital expenditures and cover operational costs.

They can use the sanctioned amount for various purposes, such as acquiring new machinery, building new infrastructure, and other short-term requirements. Commercial loans can be secured or unsecured and are considered conditional funding for business organizations.

Steps for Commercial Loan Review

A commercial loan review process takes place in three different steps – pre-file review, file review, and post-file review.

  1. Pre-File Review: Review documents, such as delinquent loan reports, problem loan reports, loan policies, and underwriting guidelines that include the loan loss reserve policy and risk grade system. Select loan samples by reviewing a subset of files to assess the portfolio quality.
  2. File Review: Develop a schedule for the particular file review depending on the size and quality of the specific portfolio. Send the list of loan samples to the management team to begin working on them.: Conduct meetings with the management team to review the scope of work and the list of loans included in the sample and understand the purpose of the analysis.
  3. Post File Review: Issue a formal report summarizing all conclusions, findings, and recommendations. Send an initial draft report to the management team to get a prompt response on all findings. Issue a final report with the management's responsibility for further financial recommendations.

Importance of Commercial Loan Review

A commercial loan review is conducted on various business loan files, either by hired third-party auditors or internal bank staff. The investigators who review the loans analyze the completeness of the documentation process and evaluate financial performance.

Most financial institutions conduct commercial loan reviews to uncover vulnerabilities, discrepancies, or errors in loan portfolios. Such identifications and corrections help the institutions adhere to all applicable regulations and mitigate financial risks.

Meet some lawyers on our platform

Maria A.

3 projects on CC
CC verified
View Profile

Rhea d.

26 projects on CC
CC verified
View Profile

Daehoon P.

198 projects on CC
CC verified
View Profile

Leonid G.

4 projects on CC
CC verified
View Profile

Types of Commercial Loans Reviews

  • Compliance Review: In this review, the institution's goal is to ensure that all regulatory requirements are met and that the associated documentation is complete.
  • Safety and Soundness Review: The review involves inspecting a segment of the particular financial institution to discover credit weaknesses.

Essential Features of Commercial Loan Review

Effective commercial loan portfolio management is crucial to control credit risk. A commercial loan review is an important process to help identify risks related to lending and borrowing credit. It further assesses the overall quality of a particular loan portfolio.

Here is a list of features of the commercial loan review:

  • Assess individual and commercial loans, including repayment risks.
  • Determine compliance with lending policies, processes, and procedures.
  • Identify loan documentation lapses.
  • Provide credit risk management priority investigation and findings.
  • Recommend procedures and practices to address different findings.
  • Evaluate risk grades related to loans and their accuracy.

Inclusions in Commercial Loan Review

  • Summary Results: It presents the findings derived from priority-level sources. High-priority findings are violations of specific policies that may result in civil penalties or loss of money. Low-priority findings provide suggestions related to adherence to industry-wide best practices.
  • Summary of Risk Rating Recommendations: It provides specific information for loans that a commercial loan review team may recommend being upgraded or downgraded.
  • Credit Risk Management: It presents all findings and recommendations according to the commercial loan review checklist category.
  • Financial or Documentation Exceptions: It is a list that outlines all specific financial documents that may be missing from files.

Sections Involved in a Checklist for Commercial Loan Review

  • Credit Initiation: A review of the initial underwriting that involves analyzing financial statements, repayment sources, appraisal, and management.
  • Loan Structure: Evaluation of all repayment terms against a particular borrower's ability to repay a loan, environmental indemnification, guarantees, and other loan terms.
  • Loan Approval: A review of all written approval procedures, processes, and policies within a financial institution.
  • Credit File Documentation: Verifying and reviewing all relevant ongoing and initial documentation.
  • Normal Loan Monitoring: Verification of the ongoing monitoring process.
  • Problem Loan Management: An evaluation of reports sent to the senior management and downgrading delinquent loans.
  • Loan Workout Management: A review of all action plans and workout agreements for delinquent loans.

How CDFIs Use Commercial Loan Reviews

Community Development Financial Institutions (CDFIs) help promote access to local economic growth and capital in rural and urban low-income communities through monetary awards and allocation of tax credits. Here is how CDFIs use commercial loan reviews to reduce risks and promote economic growth:

  • Identify issues related to loan and credit processes.
  • Learn about modifications to be made during lending policies, procedures, and practices to address certain issues.
  • Evaluate risk grades related to individual and commercial loans.
  • Assess fraud and theft incidents that affect a financial institution and its activities.

Key Terms for Commercial Loan Review

  • Amortization: a schedule under which a specific loan principal is repaid.
  • Annual Debt Service: The total amount paid annually on a commercial real estate loan.
  • Balloon Payment : It is the principal amount due to a specific lender upon loan maturity if it is not completely amortized.
  • Basis Point: It is equivalent to 1/100 of a particular loan's 1% interest rate.
  • Bridge Loan : A short-term loan enables the borrower to get some time before getting permanent financing.
  • Capitalization Rate: It is also called the cap rate expressed in percentage that values a property's income-generating potential.
  • Capital Gain: the taxable income amount derived from selling an investment property.
  • Contingency Reserve: an additional set of funds kept aside during renovation projects or construction activities.
  • Collar: It is a phrase that defines the lower and upper limits established on adjustable rates.
  • Cost Basis: It is the total cost of a particular property.
  • Defeasance: a method used to reduce the fees required when a borrower decides to prepay a fixed commercial loan.
  • DSCR: Debt Service Coverage Ratio refers to the relationship between a property's annual NOI and the yearly mortgage debt service.

Final Thoughts on Commercial Loan Review

A commercial loan review is significant because it helps understand the current status of a financial institution by analyzing documentation processes and evaluating financial performances. However, the review process is tedious and complex for organizations. That is why it is advisable to seek legal help for such reviews.

If you are looking to get free pricing proposals from vetted lawyers that are 60% less than typical law firms, you can Click here to get started. By comparing multiple proposals for free, you can save time and stress of finding a quality lawyer for your business needs.


ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.


Need help with a Commercial Loan?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 10,987 reviews

Meet some of our Lawyers

Matthew S. on ContractsCounsel
View Matthew
4.9 (11)
Member Since:
August 5, 2020

Matthew S.

Attorney
Free Consultation
Flemington, NJ
40 Yrs Experience
Licensed in NJ, NY
Benjamin N. Cardozo School of Law (Yeshiva University)

I am a 1984 graduate of the Benjamin N Cardozo School of Law (Yeshiva University) and have been licensed in New Jersey for over 35 years. I have extensive experience in negotiating real estate, business contracts, and loan agreements. Depending on your needs I can work remotely or face-to-face. I offer prompt and courteous service and can tailor a contract and process to meet your needs.

Jason H. on ContractsCounsel
View Jason
4.9 (15)
Member Since:
March 5, 2023

Jason H.

Managing Attorney
Free Consultation
Dallas, Texas
23 Yrs Experience
Licensed in TX, VA
Regent University, School of Law

Jason has been providing legal insight and business expertise since 2001. He is admitted to both the Virginia Bar and the Texas State Bar, and also proud of his membership to the Fellowship of Ministers and Churches. Having served many people, companies and organizations with legal and business needs, his peers and clients know him to be a high-performing and skilled attorney who genuinely cares about his clients. In addition to being a trusted legal advisor, he is a keen business advisor for executive leadership and senior leadership teams on corporate legal and regulatory matters. His personal mission is to take a genuine interest in his clients, and serve as a primary resource to them.

Michael M. on ContractsCounsel
View Michael
4.9 (299)
Member Since:
September 10, 2022

Michael M.

Principal
Free Consultation
Los Angeles, CA
37 Yrs Experience
Licensed in CA
NYU

www.linkedin/in/michaelbmiller I am an experienced contracts professional having practiced nearly 3 decades in the areas of corporate, mergers and acquisitions, technology, start-up, intellectual property, real estate, employment law as well as informal dispute resolution. I enjoy providing a cost effective, high quality, timely solution with patience and empathy regarding client needs. I graduated from NYU Law School and attended Rutgers College and the London School of Economics as an undergraduate. I have worked at top Wall Street firms, top regional firms and have long term experience in my own practice. I would welcome the opportunity to be of service to you as a trusted fiduciary. In 2022 I was the top ranked attorney on the Contract Counsel site based upon number of clients, quality of work and top reviews.

Julian H. on ContractsCounsel
View Julian
5.0 (4)
Member Since:
July 14, 2020

Julian H.

Business Attorney
Free Consultation
San Antonio, Texas
22 Yrs Experience
Licensed in MD
Howard University School of Law

I am a business attorney with years of experience advising individual entrepreneurs and small businesses on issues ranging from entity selection/formation to employment law compliance, to intellectual property protection and exploitation. I often act as General Counsel for my clients fulfilling the legal function as part of a team of managers. I look forward to learning more about your business and how I may be of assistance.

Christopher R. on ContractsCounsel
View Christopher
5.0 (12)
Member Since:
August 25, 2020

Christopher R.

Attorney
Free Consultation
Boston, MA
10 Yrs Experience
Licensed in MA, NH
Suffolk University Law School

Corporate and transactional attorney in sixth year of practice. Focus areas include general corporate counsel, labor and employment law, business partnership matters, securities matters related to privately-held companies, and regulatory compliance in securities and finance matters.

Forest H. on ContractsCounsel
View Forest
5.0 (53)
Member Since:
July 14, 2020

Forest H.

Attorney
Free Consultation
Nashville, TN
26 Yrs Experience
Licensed in FL, TN, TX
Washington and Lee University

Forest is a general practice lawyer. He provides legal advice regarding small business law, contracts, estates and trusts, administrative law, corporate governance and compliance. Forest practiced complex commercial litigation in Florida for eight years, representing clients such as Host Marriott, Kellogg School of Business, and Toyota. Since moving to Nashville in 2005, he has provided legal advice to clients forming new businesses, planning for the future, and seeking funding through the use of equity and/or debt in their businesses. This advice has included the selection of business type, assistance in drafting and editing their business plans and offering material, reviewing proposed term sheets, and conducting due diligence. Forest is a member of the Florida, Tennessee, and Texas Bars; in addition. Forest has held a Series 7, General Securities Representative Exam, Series 24, General Securities Principal, and Series 63, Uniform Securities Agent State Law.

Find the best lawyer for your project

Browse Lawyers Now

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

View Trustpilot Review

Need help with a Commercial Loan?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 10,987 reviews
CONTRACT LAWYERS BY TOP CITIES
See All Business Lawyers
COMMERCIAL LOAN REVIEW LAWYERS BY CITY
See All Commercial Loan Review Lawyers

Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.

View Trustpilot Review

I never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.

View Trustpilot Review

I got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.

View Trustpilot Review

Need help with a Commercial Loan?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 10,987 reviews

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call

Find lawyers and attorneys by city