LoanOfficer

Banking Careers – Loan Officer

In Retail Banking by Gaurav SharmaUpdated On:

Loan officers are an indispensable part of a bank’s retail operations. They are the ones responsible for originating and processing loan requests from individuals or small businesses. It is not just banks but also credit unions and other non-banking financial institutions that require teams of well trained and motivated loan officers.

Job Description

Loan officers represent the army of professionals performing one of the most basic functions of a retail bank – that of making loans. From the minute a customer walks in, to the point the final loan is sanctioned and dispersed, the loan officer must help push the entire process along. The job description for a loan officer may be divided into the following broad categories:

Part 1: Origination and sourcing

Loan officers have to be generalists who are responsible for the entire lending process from beginning to end. The first step in this process is to convert a lead and initiate contact with a potential client. There are multiple avenues to acquire customers. For example, some customers just walk-in to a bank. Then there are online lead generation platforms. Some banks even getting leads from companies which specialize in cold calling customers on the bank’s behalf.

Once a potential client has been identified, the real sales work begins. The loan officer must talk to the client, understand his or her requirements and lastly get a brief idea about the client’s general financial position and their ability to repay. The full analysis obviously happens later but screening the right customer at the beginning itself can save a lot of unnecessary work by weeding out cases that are obviously not going to get sanctioned.

Once the client has been convinced, the next part of the job begins.

Part 2: Processing the application

The second phase of the process is all about collecting the relevant documents from the customer, checking them from completeness, and passing them on to other teams for processing. This sounds easier than it is. The real challenge at this stage is the fact that not all documents are standardized. For example, in order to prove the client’s creditworthiness, a number of different documents can be asked for. It could be salary slips, business documents, tax documents and so on.

In addition to these documents, the loan officer also needs to collect what are called KYC documents. KYC stands for know-your-customer and is a mandatory regulatory requirement which requires each bank to collect the proof of identity, address, signatures et cetera of the client.

Signatures or addresses can mismatch between these documents though and things like that can lead to delays. Therefore, a good loan officer will do well to check these documents in advance in order to ensure completeness and accuracy.

Part 3: Evaluation

The financial evaluation of the loan is a rather critical step in this entire process. How exactly this evaluation happens, may differs from bank to bank. For example, some loans might be sent to a specialized credit department which looks at all the documents/ data and then individually approves or rejects cases. In other cases, the loan might get approved at the branch level itself by an approving authority which might be the loan officer’s superior.

The loan officer’s job in this evaluation process is to answer any queries, should they arise. The credit department might have some concerns about some peculiarity and the loan officer would have to connect with this client to get that resolved in order to get the loan approved. Some banks even use automated software which can auto approve small-scale loans with standardized parameters.

Part 4: Disbursal and tracking

Once the loan has been approved, the funds are transferred to the client. From here, the process is usually pretty straightforward. The client receives the payment schedule that he has to follow in order to pay off the loan. Any queries that the customer has after this point are usually answered by the customer services department rather than the loan officer.

In case there is some issue with the loan and the client is unable to make the payments, it falls to dedicated collections team to take it forward. The loan officer might be consulted in case there are any discrepancies found in the loan application, but for the most part if the process was followed as per the bank’s rules, then he has done his job.

Skill Requirements

Based on the job description above, it is quite clear that the loan officer has to be quite a generalist. This is somewhat in contrast with many other banking roles which require specialized focus on just a few tasks. Let’s look at the main skill requirements for loan officers:

An agreeable and friendly personality, while also exuding confidence – Perhaps more than any other skill, I would place this as the primary skill requirement for loan officers. A loan officer interfaces directly with the client and his or her personality has a massive impact on how likely that client is to initiate a business relationship with the bank. The price of the loan is obviously a factor, but in most cases the difference in pricing is small enough where a charming but knowledgeable adviser can make a huge difference.

A positive attitude – Depending on the type of customers the loan officer is handling, it is entirely possible that the number of loans that are finally sanctioned might be a small percentage of those that were initiated. This means that the loan officer might have to deal with a lot of days when things just don’t seem to be moving in a positive direction. In such a situation, it helps to have a positive attitude which not only helps the employee himself, but also those around him.

General business acumen – During the initial screening process, the loan officer has to ask questions that make sense based on the information that the client has provided. People need loans for millions of different reasons, and it is loan officer’s job to understand if the customer has a legitimate reason to borrow. Furthermore, an experienced loan officer can also make a pretty good guess as to the likelihood of seeing that loan repaid with interest. As mentioned before, this is not the final and formal approval process. This is just an initial screening which can save time by rooting out completely bogus applications.

Credit skills – Credit skills are necessary to make sense of the financial aspects. Assessing the creditworthiness of the client involves things like looking at credit reports, existing debt, income stability, collateral, and dozens of other factors. For bigger loans or loans linked to businesses this can obviously get a lot more complex. Loan officers usually get on-the-job training for these credit skills.

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Academic Qualifications and Certifications

A bachelor’s degree in finance, business or economics is the standard requirement for most loan officer jobs. Other mathematical fields might also be acceptable as long as you can display at least a basic number crunching ability. Understanding basic finance concepts like compound interest, financial average, probability of default etc. would probably be necessary. There are various online resources available to brush up on these basic concepts before going for an interview.

There are also a number of certifications offered by various bodies. These are not mandatory unlike the formal licenses covered in the next section, but exist mainly as an indicator that the loan officer has some basic understanding of his or her role. Here are some examples:

Loan Officer Training – This course provides some great on-the job practical advice to loan officers and mortgage bankers. As a loan officer, your success and consequently, your compensation depends on how well you can close and this is the best course to teach you that.

American Banker’s Association’s Certificate in Business and Commercial Lending – This course is focused towards loan officers who handle small business loan applications. It covers things like loan structuring, business models, credit analysis, and so on.

Mortgage Bankers Association’s Certified Mortgage Banker (CMB) – As the name suggests, the certificate is targeted more towards mortgages and real estate financing.

Formal Licenses

Some specific categories of loans require formal certifications to be completed. For example, mortgage loan officers in the United States must have a Mortgage Loan Originator (MLO) license. There are also state-level requirements for some of these roles which should be checked on a case to case basis. Usually the job advertisement will specify if any such certification is required.

Undergoing one of these certifications might be a good idea as such roles will usually have a lesser number of candidates competing for the same job.

Salary and Bonus

Median salary for loan officers in the United States is around USD 65,000. The majority of loan officers should expect salaries between USD 30,000 at USD 120,000. The city you are working in, the bank you are working for and your own work experience will greatly affect this.

Salaries in Europe are somewhat similar with the average being around EUR 40,000 to 50,000.

The interesting aspect of working as a loan officer is that your bonus can be highly dependent on your performance and closure rate. For example, a loan officer who closes several dozen applications in a month can expect to earn several times more money than a low performer. This is the reason why soft skills are so very important for this role, in addition to the ability to actually close cases. Efficiency is the name of the game here.

There is also some variability based on the size and quantum of the loans that you cover. Small loans of just a few thousand dollars vs mortgage loans or business loans for small companies worth several hundred thousand dollars, all have different incentive schemes.

Work Hours

The work hours for loan officers are generally not as bad as for those in the various corporate banking roles. The main reason for this is that the quantum of the deals is usually smaller, so there is not a lot of client pressure for closing some billion-dollar deal.

However, this can change drastically based on the amount of new loan applications that you have to process. If you are a really good salesman and can close several cases during the day, then you might have to spend a lot of time completing the internal paperwork and getting those loans sanctioned. You will obviously be rewarded for that extra effort and time with incentives and bonuses.

At the end of the day, all of this just means is that you have some amount of flexibility in deciding how much effort you want to put into the job. This is usually not the case for many other banking jobs where you have little control over how much you want to take on.

A Day in the Life of a Loan Officer

A typical day for a loan officer might look something like this:

You begin your day by checking all your emails and messages and responding to them. These can be queries from customers or queries raised by internal teams regarding some of them which are already under process. This often can take a good portion of your morning. In many cases, you might not have the documents or information available on hand and might have to contact the client to get that information. This means more emails or phone calls and time really flies when you are having a busy day.

Once all the pending actions are taken care of, it is time to focus on new business opportunities. Sometimes you will have clients walking to the branch and you have to help them out with their loan requirements. Other times, you might have to initiate the process by calling any leads that your bank has generated through various means. It really depends on how your employer generates business. Being part of a larger and well-known brand obviously makes the process of origination a bit easier.

Other activities include networking, staff meetings, building relationships both internally and externally and scheduling housekeeping activities. Housekeeping activities refers to things like completing internal training and certifications, wrapping up any pending paperwork, etc.

Career Path and Progression

With all the different hats that a loan officer has to wear each day, it is not surprising that he or she has so many different options available from a career growth perspective.

Option 1 – Continuing to work in loan origination

Top performing loan officers who close dozens of cases a month, can potentially earn more money than even more senior banking roles. Therefore, it might not even be necessary to move away from such a lucrative position. However, even for the majority of loan officers who are not superstars, there are options to simply move up the chain of command. A regional branch manager might have several loan offices reporting to him or her. And there are really no limits on how high you can go up this chain if you are good. You might have to get an MBA, but the option is always there, and many take this path.

Option 2 – Moving to a bigger pond

The size of the loans that a bank sanctions can range from a few thousand dollars to several billion dollars. Loan officers in retail banking usually handle the smallest segment of that market. They make loans to individuals or small businesses. But there is some variability in this category itself. For example, mortgage loans or loans made to small businesses would generally be higher value than personal loans.

If you want to go even bigger, you would need to make the shift to commercial or corporate banking. Here, the role can be quite different as instead of being a generalist you have to become a specialist. Instead of being responsible for the entire loan process, you will usually only be responsible for a specific task like credit analysis, relationship management, investment banking and so on.

Option 3 – Miscellaneous roles in banking

Because a loan officer covers everything from credit analysis to relationship management to compliance and other activities, there exists the possibility of moving into any such role later on. Such moves are not very common. Yet, given the skill set that loan officers develop, everything is a possibility. Depending on specific circumstances whereby an individual might want more/ less client engagement, a flexible work schedule or other such constraints, such a move might be justified.

Option 4 – Any sales role

For many banking rules, the core skill is actually the ability to sell. If a loan officer has developed this ability to sell one product, it is usually not very difficult to market and sell other products as well. In such cases, it is the ability to sell products by understanding what the client wants that is valuable. For such super salespeople, there are any number of lucrative opportunities across various sectors of the economy.

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About the Author

Gaurav Sharma

Gaurav started his career as a Corporate and Investment Banking intern at Citi in 2009 and eventually ended up as an Associate Director at Standard Chartered Bank’s Wholesale Banking division a few years later. By 2016, Gaurav was consulting FinTech start-ups in London with product development in the institutional banking space. He also advises mid-market Private Equity/ Asset Management firms and Banks in North America and Europe with investments in the financial services and FinTech sector. Gaurav writes on topics ranging from European Union banking regulations and FinTech to Blockchain startups and the inevitable rise of our AI overlords! He has an Engineering degree in Computer Science and an MBA with a double major in Finance and Marketing. He is also a Certified Financial Risk Manager.