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What are Business Loans? A business loan is funding given to business by a bank, an individual(s), or an organization usually to be repaid by a certain date with a certain amount of interest. The amount of a loan, the amount of interest, the repayment date, the qualification of the loan recipient to merit the loan, the credit analysis, and the number of lenders used to achieve the desired loan amount are all variable. IMPORTANT DEFINITION Credit Analysis: An analysis of a business's records and financial affairs to determine it's creditworthiness. The Amount of Business Loans A business might seek to borrow money for many reasons which may include, but is not limited to: making up a shortfall in operating capital, expanding an existing business to another location, developing an area or new idea within an existing business, or creating an entirely new business. Each need has its own set of variables and prioritization of those costs. For example if you are developing a new location and wish to transfer your top manager to lead the effort you may need to factor in additional money for his/her living expenses or a relocation package; whereas if you wish to develop a new idea or product you might need to allocate funds toward patent attorney fees. In both cases, significant costs arise from elements that are oftentimes outside of a project managers field of vision, but are significant to a loan officers risk analysis and payback schedule. In order to determine the correct loan amount to take you will need to assign a cost to every operational, financial, or developmental aspect within the business plan. The Amount of Interest Assessed on a Business Loan Lenders will assess interest on a loan based upon the prime rate set by the Federal Reserve Bank,

the recipients credit history, the presence of collateral, the political climate, and the ventures risk. Alternatively the Cost-Plus Loan pricing model is employed which uses four factors in determining the interest rate: the funding cost incurred by the bank to raise funds to lend, whether such funds are obtained through customer deposits or through various money markets; the operating costs of servicing the loan, which include application and payment processing, and the banks wages, salaries and occupancy expense (overhead); a risk premium to compensate the bank for the degree of risk involved with the loan request; and a profit margin that provides the bank with an adequate return on its capital. IMPORTANT DEFINITION Overhead: The cost of doing business unrelated to production or sale of goods or services. Office rent, for instance, is an overhead expense. It remains unchanged no matter how much a company sells.

Repayment Date for a Business Loan Determining a business loans repayment schedule will hinge primarily upon for what the loan is being used. If the loan will be used to acquire land, plant or equipment of a tangible nature then the repayment schedule can be based against the borrowers needs balanced with the lenders needs. Usually the repayment schedule will consist of equal total payments per time period (amortization); equal principal payments per time period; or equal payments over a specified time period with a balloon payment due at the end to repay the balance. When the business loan is unsecured or to be used for operating capital, a new venture, or expansion, the repayment schedule will be shorter and have less flexibility due to the higher inherent risk. Qualifying for a Business Loan Neat documentation, data which both justifies issuing the loan and demonstrates comfortable loan repayment, a thorough business plan with attached contingency plans presented with enthusiasm and confidence together with a good personal and/or company credit report will all significantly improve your chances of securing the loan. No area in your presentation can be found to be lacking if you reasonably expect this loan officer or institution to give you their money. Disorganized application paperwork with missing information can delay processing and remove the loan officers attention from your plan. Also, you must assume that the loan officer knows nothing about your particular field IMPORTANT DEFINITION Collateral: Something of value (land, a home, a car, etc.) that is pledged as security to ensure the payment of a debt. Collateral is promised to a lender until a loan is repaid. If theborrower defaults, the lender has the right by law, to seize the collateral. of business. You must create the business plan and data sheets in a manner that is easily understood by the layman loan officer while still demonstrating that the loan amount is justified and will be repaid. It is important to remember that loaning money is the banks raison de et it cannot survive without making loans, but it will not lend in a situation where the risk is too great,

and that includes lending money to sloppy or careless individuals with poorly thought-out plans, unless, of course, the loan is sufficiently collateralized.

Loan Officers
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Nature of the Work Training, Other Qualifications, and Advancement Employment Job Outlook Projections Earnings Wages Related Occupations Sources of Additional Information

Significant Points

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Nearly 9 out of 10 loan officers work for commercial banks, savings institutions, credit unions, and related financial institutions. Educational requirements range from a high school diploma for many loan officers to a bachelor s degree for commercial loan officers; previous banking, lending, or sales experience is highly valued. Good job opportunities are expected for mortgage and consumer loan officers and excellent opportunities are expected for commercial loan officers. Earnings often fluctuate with the number of loans generated, rising substantially when the economy is strong and interest rates are low.

Nature of the Work About this section

Many individuals take out loans to buy a house, car, or pay for a college education. Businesses use loans to start companies, purchase inventory, or invest in capital equipment. Loan officers facilitate this lending by finding potential clients and helping them to apply for loans. Loan officers gather information to determine the likelihood that individuals and businesses will repay the loan. Loan officers may also provide guidance to prospective borrowers who have problems qualifying for traditional loans. For example, loan officers might determine the most appropriate type of loan for a particular customer and explain specific requirements and restrictions associated with the loan. Loan officers usually specialize in commercial, consumer, or mortgage loans. Commercial or business loans help companies pay for new equipment or expand operations. Consumer loans include home equity, automobile, and personal loans. Mortgage loans are loans made to purchase real estate or to refinance an existing mortgage.

Loan officers guide clients through the process of applying for a loan. The process begins with the client contacting the bank through a phone call, visiting a branch, or filling out a Web-based loan application. The loan officer obtains basic information from the client about the purpose of the loan and the applicants ability to pay the loan. The loan officer may need to explain the different types of loans and credit terms available to the applicant. Loan officers answer questions about the process and sometimes assist clients in filling out the application. After a client completes an application, the loan officer begins the process of analyzing and verifying the information on the application to determine the client's creditworthiness. Often, loan officers can quickly access the client's credit history by using underwriting software that determines if a client is eligible for the loan. When a credit history is not available or when unusual financial circumstances are present, the loan officer may request additional financial information from the client or, in the case of commercial loans, copies of the company's financial statements. Commercial loans are often too complex for a loan officer to rely solely on underwriting software. The variety in companies financial statements and varying types of collateral require human judgment. Collateral is any asset, such as a factory, house, or car, owned by the borrower that becomes the property of the bank if the loan is not repaid. Loan officers comment on, and verify, the information of a loan application in a loan file, which is used to analyze whether the prospective loan meets the lending institution's requirements. Loan officers then decide, in consultation with their managers, whether to grant the loan. Commercial loans are sometimes so largefor example, the loan needed to build a new shopping mallthat a single bank will not lend all of the money. In this case, a commercial loan officer may work with other banks or investment bankers to put together a package of loans from multiple sources to finance the project. In many instances, loan officers act as salespeople. Commercial loan officers, for example, contact firms to determine their needs for loans. If a firm is seeking new funds, the loan officer will try to persuade the company to obtain the loan from his or her institution. Similarly, mortgage loan officers develop relationships with commercial and residential real estate agencies, so that when an individual or firm buys a property, the real estate agent might recommend contacting a specific loan officer for financing. Some loan officers, called loan underwriters, specialize in evaluating a client's creditworthiness and may conduct a financial analysis or other risk assessment. Other loan officers, referred to as loan collection officers, contact borrowers with delinquent loan accounts to help them find a method of repayment to avoid their defaulting on the loan. If a repayment plan cannot be developed, the loan collection officer initiates collateral liquidation, in which the lender seizes the collateral used to secure the loana home or car, for exampleand sells it to repay the loan. Work environment. Working as a loan officer usually involves considerable work outside the office. For example, commercial and mortgage loan officers frequently work away from their offices and rely on laptop computers and cellular telephones to keep in contact with their employers and clients. Mortgage loan officers often work out of their home or car, visiting

offices or homes of clients to complete loan applications. Commercial loan officers sometimes travel to other cities to prepare complex loan agreements. Consumer loan officers, however, are likely to spend most of their time in an office. Most loan officers work a standard 40-hour week, but many work longer, depending on the number of clients and the demand for loans. Mortgage loan officers can work especially long hours because they are free to take on as many customers as they choose. Loan officers are especially busy when interest rates are low, causing a surge in loan applications.

Loan officers guide clients through the loan application process.

Training, Other Qualifications, and Advancement About this section

Loan officers need a high school diploma and receive on-the-job training. Commercial loan officer positions often require a bachelor's degree in finance, economics, or a related field. Previous banking, lending, or sales experience is also highly valued by employers. Education and training. Loan officer positions generally require a high school degree. Loan officers receive on-the-job training consisting of some formal company-sponsored training and informal training on the job over their first few months of employment. Commercial loan officer positions often require a bachelor's degree in finance, economics, or a related field. Because commercial loan officers analyze the finances of businesses applying for credit, they need to understand business accounting, financial statements, and cash flow analysis. Loan officers often

advance to their positions after gaining experience in various other related occupations, such as teller or customer service representative. Licensure. Recent federal legislation requires that all mortgage loan officers be licensed. Licensing requirements include at least 20 hours of coursework, passing a written exam, passing a background check, and having no felony convictions. There are also continuing education requirements for mortgage loan officers to maintain their licenses. There are currently no specific licensing requirements for other loan officers. Other qualifications. People planning a career as a loan officer should be good at working with others, confident, and highly motivated. Loan officers must be willing to attend community events as representatives of their employer. Sales ability, good interpersonal and communication skills, and a strong desire to succeed also are important qualities for loan officers. Banks generally require their employees to pass a background check. Most employers also prefer applicants who are familiar with computers and banking and financial software. Certification and advancement. Capable loan officers may advance to larger branches of their firms or to managerial positions. Some loan officers advance to supervise other loan officers and clerical staff. Various banking associations and private schools offer courses and programs for students interested in lending and for experienced loan officers who want to keep their skills current. For example, the Bank Administration Institute, an affiliate of the American Banker's Association, offers the Loan Review Certificate Program for people who review and approve loans. The Mortgage Bankers Association offers the Certified Mortgage Banker (CMB) designation to loan officers in real estate finance. The association offers three CMB designations: residential, commerce, and master to candidates who have 3 years of experience, earn educational credits, and pass an exam. Completion of these courses and programs generally enhances employment and advancement opportunities.

Employment About this section

Loan officers held about 327,800 jobs in 2008. Nearly 9 out of 10 loan officers were employed by commercial banks, savings institutions, credit unions, and related financial institutions. Loan officers are employed throughout the Nation, but most work in urban and suburban areas. At some banks, particularly in rural areas, the branch or assistant manager often handles the loan application process.

Job Outlook About this section

Loan officers can expect average employment growth. Good job opportunities should exist for loan officers. Employment change. Employment of loan officers is projected to grow 10 percent between 2008 and 2018, which is about as fast as the average for all occupations. Employment growth will be

driven by economic expansion and population increasesfactors that generate demand for loans. Growth will be partially offset by increased automation that speeds the lending process and by the growing use of the Internet to apply for and obtain loans. However, these changes have also reduced the cost and complexity associated with refinancing loans, which could increase the number of loans originated. The use of automated underwriting software has made the loan evaluation process much simpler than in the past. Underwriting software allows loan officersparticularly loan underwritersto evaluate many more loans in less time. In addition, the mortgage application process has become highly automated and standardized, a simplification that has enabled mortgage loan vendors to offer their services over the Internet. Online vendors accept loan applications from customers over the Internet and determine which lenders have the best interest rates for particular loans. With this knowledge, customers can go directly to the lending institution, thereby bypassing mortgage loan brokers. Shopping for loans on the Internet is expected to become more common in the future and to slow job growth for loan officers. Job prospects. Most job openings will result from the need to replace workers who retire or otherwise leave the occupation permanently. Good job opportunities should exist for mortgage and consumer loan officers. College graduates and those with banking, lending, or sales experience should have the best job prospects. Excellent opportunities should exist for commercial loan officers as banks report having a hard time finding qualified candidates. Job opportunities for loan officers are influenced by the volume of applications, which is determined largely by interest rates and by the overall level of economic activity. Although loans remain a major source of revenue for banks, demand for new loans fluctuates and affects the income and employment opportunities of loan officers. An upswing in the economy or a decline in interest rates often results in a surge in real estate buying and mortgage refinancing, requiring loan officers to work long hours processing applications and inducing lenders to hire additional loan officers. Loan officers often are paid by commission on the value of the loans they place, and when the real estate market slows they often suffer a decline in earnings and may even be subject to layoffs. The same applies to commercial loan officers, whose workloads increase during good economic times as companies seek to invest more in their businesses. In difficult economic conditions, an increase in the number of delinquent loans results in more demand for loan collection officers.

Projections Data About this section

Projections data from the National Employment Matrix

Occupational Title Loan officers

SOC Code

Employment, 2008

Projected Change, Employment, 2008-18 2018 Number Percent

Detailed Statistics

13327,800 360,900 33,000 10 [PDF] [XLS] 2072 NOTE: Data in this table are rounded. See the discussion of the employment projections table in the Handbook introductory chapter on Occupational Information Included in the Handbook.

Earnings About this section

Median annual wages of wage and salary loan officers were $54,700 in May 2008. The middle 50 percent earned between $39,710 and $76,860. The lowest 10 percent earned less than $30,850, while the top 10 percent earned more than $106,360. Median annual wages in the industries employing the largest numbers of loan officers were as follows:
Federal Executive Branch Management of companies and enterprises Nondepository credit intermediation Activities related to credit intermediation Depository credit intermediation $69,070 58,100 54,240 54,140 53,490

The form of compensation for loan officers varies. Most are paid a commission based on the number of loans they originate. Some institutions pay only salaries, while others pay their loan officers a salary plus a commission or bonus based on the number of loans or the performance of the loans that they originated. Loan officers who are paid on commission usually earn more than those who earn only a salary, and those who work for smaller banks generally earn less than those employed by larger institutions. Earnings often fluctuate with the number of loans generated, rising substantially when the economy is strong and interest rates are low.