In Part I of this post (HERE), we discussed the Gambler’s Fallacy and how the loan process itself can inject bias into a bank’s decisioning. In particular, we looked at how the order of how loans are reviewed for credit makes a difference. This sequence bias comes from an inherent cognitive belief in humans that want to assume the world is less random than it is. Flip a coin enough times, and every time the result is heads in a row it is natural to assume that tails are due.
Tag: Lending Process
Readers of this column know that we are big experimenters with artificial intelligence. We use it to set strategy (trying to figure out what really drives bank performance), use it in our loan pricing model (to offer suggestions of improvement) and to assist in credit analysis. We have also experimented with “smart systems” in a number of areas including compliance, HR, credit analysis, writing Suspicious Activity Reports and even writing this column (and you never even knew). Some of these applications are amazingly ready for prime time while others have a ways to go.
One difference between a great commercial lender and an average commercial lender is the understanding of loan documents and insightful knowledge of key terms found in loan documents. In this first part, of two, we will consider the structure of common commercial loan documentation and some finer points about working with these agreements and terms.
Borrower’s and Lender’s Objectives