What is a loan committee?
A loan committee is the loan or management committee of a bank or other lending institution. It generally consists of senior officers with management powers. The loan committee subsequently analyzes and approves or rejects any loan that the original loan officer does not have the authority to approve. The committee ensures that the loan complies with the institution’s standard loan policy. If this is the case, the committee can agree to finance and disburse the loan with a binding commitment.
Operation of a loan committee
A loan committee is usually responsible for the regular credit checks of maturing loans, which are ones that are nearing the end of their term. For example, a loan of 10 years in its ninth year would be a loan maturing. Sometimes a bank can extend the original credit facility. However, the loan committee must ensure that this is done in accordance with the proper procedure. It is important for the bank to ensure that the creditworthiness of the borrower has not deteriorated.
To determine the creditworthiness of a borrower, a loan committee will conduct an assessment that will include factors such as the borrower’s repayment history and credit rating, as well as the amount of assets and liabilities available on the balance sheet of the borrower. ‘individual.
A loan committee subsequently analyzes and approves or rejects any loan that the original loan officer does not have the authority to approve.
Three major agencies in the United States (Experian, Transunion and Equifax) report, update and store the credit history of consumers, which the credit committees include in their decision to grant credit to a borrower. The top five factors that these agencies use to calculate a credit score are payment history, total amount owed, length of credit history, types of credit, and new credits.
A loan committee also determines the collection action to be taken on overdue loans. According to the credit institution’s policy, once a borrower has missed its due date, the committee can either immediately charge late fees or authorize the borrower to enter a grace period . For the account to be in good standing, the borrower must make the minimum payments required, including late fees. Individuals or businesses that are 30 days behind on loan payments will usually find that the overdue account has affected their credit report.
Finally, a credit committee will also be responsible for ensuring that the bank complies with all regulations. This can include not only loan procedures, but also bankruptcy and receivership issues and even extend to the examination of marketing materials.