Commercial Lending Specialist Salary UK

Creditworthiness depends on several factors: ability to repay (strong and stable cash flows, manageable debt levels), willingness to repay (track record of meeting obligations), collateral (assets to recover loan if default occurs), and guarantees (personal guarantees from owner or parent company). The specific weight varies by loan type. For a mortgage, collateral (property value) is crucial. For a working capital facility, cash flow is paramount. A solid borrower has all four factors; a weaker borrower might require additional protections (guarantees, covenants) to be acceptable.

Covenants are contractual obligations that borrowers must maintain (e.g. maintain minimum cash balance, don't exceed certain debt levels, maintain insurance). Financial covenants set targets for key metrics (interest coverage ratio, debt service coverage). Operational covenants restrict borrower behaviour (no acquisitions without lender consent, maintain minimum working capital). Covenants protect lenders by providing early warning of deterioration and giving lenders the right to intervene before default. Well-designed covenants are meaningful but not overly restrictive; overly tight covenants strain borrower relationships and may not reflect business reality.

Start with understanding the business: what do they do, how do they make money, what are key drivers? Then analyse the financials: revenue growth and stability, profitability (EBITDA margins), cash generation (operating cash flows), and leverage (debt to EBITDA or interest coverage). Look for trends: are margins improving or declining? Compare to industry peers: are they performing better or worse than competitors? Check for one-off items or accounting treatments that might distort results. Interview management about key assumptions and risks. Never take financials at face value; challenge and verify.

A term loan is a fixed borrowing amount repaid over a defined period (e.g. £2m loan repaid over 5 years). A revolving credit facility allows borrowers to draw and repay as needed up to a limit (like a credit card with a £5m limit). Term loans are used for capital investments or one-off funding needs; revolving facilities are used for working capital fluctuations. Pricing differs: term loans have fixed rates; revolving facilities are typically priced on floating rates plus a spread. As a lender, you'll manage both; the monitoring and risk profile differ.

LTV is the loan amount divided by the value of the collateral. For example, a £400k mortgage on a £500k property has 80% LTV. Lower LTV (higher loan cushion) means the lender is more protected if the borrower defaults and the asset must be sold. LTV varies by asset type: property mortgages typically have 70–80% LTV; equipment lending 60–70% LTV. In difficult markets, asset values fall, increasing LTV and lender risk. Good underwriting balances loan size and collateral value to ensure appropriate protection. Most lenders have maximum LTV policies by asset type.

First, understand the issue. Is it temporary (seasonal, one-off event) or structural (underlying business deterioration)? Discuss with the borrower: what are they doing to address it? Do they have a credible action plan? If temporary, a covenant waiver may be appropriate. If structural, the loan is at risk; you might restructure terms, require guarantees, or escalate to management for potential exit (selling the loan, forcing prepayment). Maintain regular communication with the borrower. Document all discussions and decisions. The goal is to manage the risk whilst preserving the relationship if the borrower can recover.