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Credit analysts typically concentrate on one of two different areas. Commercial and business analysts evaluate risks in business loans; consumer credit analysts evaluate personal loan risks. In both cases an analyst studies financial documents, such as a statement of assets and liabilities submitted by the person or company seeking the loan, and consults with banks and other financial institutions that have had previous financial relationships with the applicant. Credit analysts prepare, analyze, and approve loan requests and help borrowers fill out applications.
The scope of work involved in a credit check depends in large part on the size and type of the loan requested. A background check on a $3,000 car loan, for example, is much less detailed than on a $400,000 commercial improvement loan for an expanding business. In both cases, financial statements and applicants will be checked by the credit analyst, but the larger loan will entail a much closer look at economic trends to determine if there is a market for the product being produced and the likelihood of the business failing. Because of these responsibilities, many credit analysts work solely with commercial loans.
In studying a commercial loan application, a credit analyst is interested in determining if the business or corporation is well managed and financially secure, and if the existing economic climate is favorable for the operation's success. To do this, a credit analyst examines balance sheets and operating statements to determine the assets and liabilities of a company, its net sales, and its profits or losses. An analyst must be familiar with accounting and bookkeeping methods to ensure that the applicant company is operating under accepted accounting principles. A background check of the applicant company's leading officials is also done to determine if they personally have any outstanding loans. An on-site visit by the analyst may also be necessary to compare how the company's operations stack up against those of its competitors.
Analyzing economic trends to determine market conditions is another responsibility of the credit analyst. To do this, the credit analyst computes dozens of ratios to show how successful the company is in relation to similar businesses. Profit-and-loss statements, collection procedures, and a host of other factors are analyzed. This ratio analysis can also be used to measure how successful a particular industry is likely to be, given existing market considerations. Computer programs are used to highlight economic trends and interpret other important data.
The credit analyst always provides a findings report to bank executives. This report includes a complete financial history of the applicant and usually concludes with a recommendation on the loan amount, if any, that should be advanced.