Tag: Prepayment

Why Commercial Loan Prepayment Provisions Matter

Protecting Commercial Loan Profitability

In an article two weeks ago, we discussed why community banks should desire prepayment provisions in their loans.  We also acknowledged that in this very competitive banking market banks are unable to negotiate a meaningful prepayment provision.  In this blog, we will identify techniques that some banks may use to obtain a meaningful prepayment provision, and we share a video explaining how CenterState Bank lenders use these techniques with commercial borrowers to negotiate a powerful prepayment provision. 

 

Before You Waive Prepayment Protection On A Loan, Consider This

Structuring Loan Value

Top performing banks use prepayment protection (PP) on commercial loans to deliver superior value and gain a competitive advantage against their competition. The connection between PP and bank value is not always apparent, but we can measure this relationship and quantify when it makes sense to remove or insist on PP.  Some banks mistakenly avoid including PP in commercial loans as a competitive strategy.  We feel that eliminating PP on commercial loans materially detracts from profitability, degrades credit quality and attracts the wrong commercial customers.

 

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