Commercial Loan Officer is one of the toughest positions to recruit for at any bank or credit union across the country.

This position generally requires the following: credit analyst experience, a college degree, the ability to have complex conversations with senior-level professionals, and the mental complexity to understand multi-investor financials. This role can create significant exposure to the lending company if these lenders are not paying attention to details with their boots on the ground.

We are going to take a closer look at the required qualifications and skills for Commercial Loan Officer 1 (CL1), Commercial Loan Officer 2 (CL2), Commercial Loan Officer 3 (CL3), and Commercial Loan officer 4 (CL4) to equip you to recruit for these highly sought-after professionals effectively! Most organizations do not use four levels, as three is the most common number of levels. 

Commercial Loan Officer Title

Anyone applying as a Commercial Loan Officer will likely have worked as (an also difficult-to-recruit) Credit Analyst for 3-5 years before advancing to the CL1 role. Some companies move the role to more of a Business Development Officer without credit experience, but this is far from the norm. Some companies do not hire the CL1 level lender and focus instead on recruiting those with large credit and portfolio experience that they hope will follow the lender. In these cases, their CLI is likely a CL2. However, portfolio sizes often do not follow the client to the new employer. Evidence shows that after three years at the new employers, less than 40% of their former clients followed the lender to the new company. 

Differences Between Titles

The difference between these four levels is significant because of the increasing impact on the bottom line of the organization. All Commercial Loan Officers need relevant experience, education, and interpersonal skills, but what differentiates them from small business bankers is the size of the loan. A small business banker, for example, would typically conduct loans under $500,000. 

The difference between grade levels is based on the size of the portfolio they manage more than any other factor. See the following table:

Commercial Loan Officer 1	< $20 Million
Commercial Loan Officer 2	$20M – $50M
Commercial Loan Officer 3	$50M – $75 Million
Commercial Loan Officer 4	$75 Million+

 

The above data set is important to note for three reasons: 

1. The size of the portfolio a CLO produces should dictate their job title and salary grade, not the title they carried at their previous employer. These professionals know their value and are very adept at negotiating their job titles in order to prove their credibility. Are you considering hiring a CL3 with a large portfolio that will follow them? One company’s CL1 is another company’s CL2. The CL1 at Bank X may carry a larger portfolio than the CL2 at Bank Y, and you can quickly see how this becomes muddy based on the position title rather than loan size.

Many organizations do not hire the CL1 role and focus prospecting on those already carrying a more extensive portfolio in hopes of those existing clients coming over to the new employer. A CL1  may be filled with a Portfolio Manager that has been promoted from a Sr. Credit Analyst role. A large amount of a CL4 portfolio may be carved out and given to the Portfolio Manager to manage to free up the CL4 to produce new clients. 

2. Most financial organizations have a margin of 4.0 – 4.50% on Commercial Loans. 

• A loan portfolio of $10M from a CL1 would produce a net income of $450,000.00. 
• A loan portfolio of a CL2 at $25M would produce a net income of over $1M. 
• A loan portfolio of a CL3 at $55M would produce a net income of $2.3M. 
• A loan portfolio of a CL4 at $90M would produce $3.83M. 

However, this is not the only deliverable. These accounts often produce significant depositary relationships, treasury service products, and wealth management fee income for a financial institution.  

3. It is common for CL roles at all levels to be incentivized with commissionable opportunities in addition to base pay. A CL1 typically has an average of 10% commission which is paid once a year 75% of the time. A CL2 or CL3 has an average 15% commission, and the CL4 may enjoy up to an average of 20%.

Interestingly, the amount of variable pay does not vary based on the asset size of the organization, and some areas of the country yield a much higher commission schedule. Approximately 20% of organizations will defer and vest a portion of the annual commission over a number of years to assess portfolio quality, and ninety percent of commission plans are heavily weighted on individual goals, such as loan volume, portfolio growth, deposit growth, cross sales referrals, and portfolio quality. As much as 50% also include some corporate performance targets, while an additional 25% include some department or group goals, such as department portfolio growth. 

Conclusion

The inability to attract and retain talented individuals in the Credit Analyst and Commercial Lending roles can be detrimental to financial institutions, potentially leading to reputational risks, client relationships, lost income, and greater exposure to bad loans. BalancedComp works with banks and credit unions of varying asset sizes to establish accurate salary ranges and target market competitive variable pay amounts. Doing it yourself in-house can result in costly errors and lead to lower retention and recruiting levels. 

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