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Current Expected Credit Loss, or CECL, is a new accounting standard that banks must apply to determine the viability of the loan based on the ability of the lender to pay over the life of the loan. Whereas previous lending standards required lending institutions to determine whether a borrower was credit-impaired, this lending standard requires lending institutions to determine if the borrower is credit-deteriorated over time.


If your lender needs an update to your business plan and financial statement to consider a substantial refinance, present a plan that stresses how the refinance will boost your revenue stream over the long term. CECL requirements placed on lenders now require that your loan pass the “smell test”; that is, the monies borrowed in the refinance must contribute to a boost in market share and income over the life of the loan. Your future business value must be shown to be improved at the end of the terms of the loan.

Qualitative and Environmental Factors

Your investment plan should include changes you plan to make to expand your business long-term. You may plan to expand your physical facility or to add expert staff members to build or improve a product line. If you’ve suffered losses in the past due to limitations of your facility or the inability to offer a competitive wage, share this data with your lender. There are various environmental factors applying in CECL regulations. Improving your staff and expanding your product line can stabilize your business over the long-term. These are just some of the ways that environmental factors apply in CECL.

Lender Flexibility

For business owners with past credit challenges, CECL restrictions may actually be a boon. While current credit rating still matters, those attempting to get new loans can also rely on a quality business plan or presentation to define and differentiate their loan needs. The risk characteristics of your industry may be unique. If so, they are worthy of individual review to determine risk over the life of the loan. CECL restrictions as provided by the Accounting Standards Update or ASU include guidance on how to group financial assets with similar characteristics. If your industry is on the cutting edge of new technology, be ready to promote how your loan needs are unique.

Loan regulation and restrictions such as CECL are designed to reduce risk to lenders over the long term. Much of the data pertaining to CECL restrictions refer to bundled loans sold to various financial institutions. However, these regulations will need to be applied to loans at most banks. Be ready to present how your loan will be put to work for the future of your business income stream.

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