Monitoring loan covenants is a crucial part of managing commercial loans. Regularly reviewing loans for covenant compliance helps banks maintain the stability and profitability of their lending operations.
What are covenants?
Covenants are conditions or requirements that a borrower must meet to secure a commercial loan. These conditions can pertain to the borrower’s financial performance, such as maintaining minimum levels of income, assets, or liquidity. Additionally, covenants may impose restrictions on the borrower’s activities, including limits on borrowing additional funds or selling assets.
Monitoring compliance with covenants is crucial because it ensures that the borrower adheres to the terms of the loan agreement. If the borrower fails to comply with these conditions, the bank may have the right to take corrective actions, such as demanding full repayment of the loan or requiring the borrower to provide additional collateral.
Why is loan covenant monitoring important?
First, it helps the bank identify potential issues with the borrower’s financial performance or activities. By regularly reviewing the borrower’s financial statements and other relevant information, the bank can detect any deviations from the covenants and take necessary actions to address them.
Second, loan covenant monitoring helps the bank maintain the quality of its loan portfolio. Ensuring that the borrower meets the terms of the loan agreement can prevent the development of problematic loans that could lead to defaults or losses.
Third, loan covenant monitoring assists the bank in complying with regulatory requirements. Many regulatory agencies have established rules and requirements related to loan covenant monitoring, and banks must demonstrate that they are taking appropriate measures to identify and address any compliance issues.
In conclusion, loan covenant monitoring is a critical aspect of managing commercial loans. By regularly reviewing loans for compliance with covenants, banks can ensure the stability and profitability of their lending operations.
Covenant Tracking & Monitoring are an important part of managing borrowers’ financial and reporting documents for loan monitoring. Almost 70% of banks still rely on some combination of spreadsheets, core ticklers, or other manual processes.
Introducing a digital banking platform designed to revolutionize how banks handle loan documents, exceptions tracking, loan reporting, and covenant monitoring. This platform eliminates the need for managing checklists, searching for files in emails, or waiting on updates from other parties. Simply create your requests, and the platform handles the rest.
Many banks and lending companies rely on non-public client information to provide their services. Examples include:
- Automated Document Gathering
- Checklists for Loan Reporting Requirements
- Frictionless Customer Experience for Sending Documents
- Creating Credit Exceptions & Tickler Tracking
- Automated Loan Monitoring and Loan Compliance
- Loan Reporting, Risk & Financial Reporting
Without a dedicated tool, professionals would have to manually manage checklists and calendar events to keep track of all required information. This platform automates these tasks while enhancing security and reporting capabilities.
Why This Digital Banking Platform
This web-based software solution for commercial banks and credit unions is designed to work with customers to manage loan agreements and eliminate credit exceptions. The platform enhances credit exception management by collaborating directly with customers beyond the bank’s internal operations.
Think of it as autopay for customer information.
With this platform, banking teams can schedule recurring requests for documents like financial statements and tax returns, compare actual and threshold covenant values (e.g., minimum DSCR), and send compliance certificates for signature via DocuSign.
Customers respond to information requests similarly to paying an online invoice – they clearly see what’s required of them and act accordingly. They can respond using a login-less portal or by email – no account or password needed.
How Does This Help Banks?
A borrower’s risk profile can change significantly over the years following a lending event. Managing loan agreement adherence through reporting and internal monitoring is an ongoing and tedious challenge for banks.
Banks striving for exceptional loan agreement management often handle complex recurring tasks using basic tools like email, spreadsheets, and calendar ticklers. Falling behind on these tasks can delay awareness of problematic loans or operating practices, jeopardizing capital and reputation.
This platform provides high-resolution loan agreement monitoring, saving time and enhancing customer satisfaction.
How Do Our Bank Customers Use This Platform?
Our bank customers use this platform to schedule and automate the activities required to monitor loan agreements.
For example, the platform is highly effective in managing revolving lines of credit. It automatically requests and reminds customers to submit monthly AR and AP listings, inventory analyses, and borrowing base certificates each month.
The platform also reminds the banking team to test various financial ratios. The results of the customer’s actions and the ratio testing are compiled into per-banker and per-office reports that can be run on-demand in seconds.
